Journal of Korean Institute of Industrial Engineers (대한산업공학회지)

Korean Institute of Industrial Engineers (대한산업공학회)
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Valuation of American Option Prices Under the Double Exponential Jump Diffusion Model with a Markov Chain Approximation

이중 지수 점프확산 모형하에서의 마코브 체인을 이용한 아메리칸 옵션 가격 측정

  • Han, Gyu-Sik (Division of Business Administration, Chonbuk National University)
  • 한규식 (전북대학교 상과대학 경영학부)
  • Received : 2012.11.04
  • Accepted : 2012.11.13
  • Published : 2012.12.01
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Abstract

This paper suggests a numerical method for valuation of American options under the Kou model (double exponential jump diffusion model). The method is based on approximation of underlying asset price using a finite-state, time-homogeneous Markov chain. We examine the effectiveness of the proposed method with simulation results, which are compared with those from the conventional numerical method, the finite difference method for PIDE (partial integro-differential equation).

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Acknowledgement

Supported by : 전북대학교

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