American-style options in jump-diffusion models: estimation and evaluation

Hatem Ben-Ameur, Rim Chérif and Bruno Rémillard

Quantitative Finance, 2016, vol. 16, issue 8, 1313-1324

Abstract: We propose dynamic programming coupled with finite elements for valuing American-style options under Gaussian and double exponential jumps à la Merton [ J. Financ. Econ. , 1976, 3 , 125--144] and Kou [ Manage. Sci. , 2002, 48 , 1086--1101], and we provide a proof of uniform convergence. Our numerical experiments confirm this convergence result and show the efficiency of the proposed methodology. We also address the estimation problem and report an empirical investigation based on Home Depot. Jump-diffusion models outperform their pure-diffusion counterparts.

Date: 2016
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DOI: 10.1080/14697688.2016.1142670

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