The Compound Option Approach to American Options on Jump-Diffusions

Chandrasekhar Reddy Gukhal

No 181, Computing in Economics and Finance 2001 from Society for Computational Economics

Abstract: We derive analytical valuation formulas for compound options when the underlying asset follows a jump-diffusion process. We then apply these results to value extendible options, American call options on stocks that follow jump-diffusion processes and pay discrete dividends, and American options on assets that evolve as jump-diffusion processes and pay continuous proportional dividends. Numerical implementation is in progress.

Keywords: Compound options; american options; jump-diffusions (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2001-04-01
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf1:181

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