Valuing American-style options under the CEV model: an integral representation based method

Aricson Cruz and José Carlos Dias ()
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Aricson Cruz: Instituto Universitário de Lisboa (ISCTE-IUL)
José Carlos Dias: Instituto Universitário de Lisboa (ISCTE-IUL)

Review of Derivatives Research, 2020, vol. 23, issue 1, No 3, 63-83

Abstract: Abstract This article derives a new integral representation of the early exercise boundary for valuing American-style options under the constant elasticity of variance (CEV) model. An important feature of this novel early exercise boundary characterization is that it does not involve the usual (time) recursive procedure that is commonly employed in the so-called integral representation approach well known in the literature. Our non-time recursive pricing method is shown to be analytically tractable under the local volatility CEV process and the numerical experiments demonstrate its robustness and accuracy.

Keywords: CEV model; Option pricing; American-style options; Early exercise boundary; Iterative method; G13 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11147-019-09157-w

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