Valuation of American options under the CGMY model

Xu Guo and Yutian Li

Quantitative Finance, 2016, vol. 16, issue 10, 1529-1539

Abstract: In the present work, we concentrate on the analytical study of American options under the CGMY process. The decomposition formula of the American option and the integral equation for the optimal-exercise boundary are established in explicit forms. Moreover, an analytical approximation formula is obtained for the American value. This approximation is valid when time to maturity is either very short or very long. Numerical simulations are provided for European options, optimal-exercise prices and approximate values for American options.

Date: 2016
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DOI: 10.1080/14697688.2016.1158854

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