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A Generalization of the Recursive Integration Method for the Analytic Valuation of American Options

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  • Lung‐Fu Chang
  • Jia‐Hau Guo
  • Mao‐Wei Hung

Abstract

This article provides a general accelerated recursive integration method for pricing American options based on stochastic volatility and double jump processes. Our proposed model is a generalization of the recursive integral representation method. American option prices can be evaluated by the sum of a corresponding European option price and an early exercise premium integral. Numerical results show that our proposed method is efficient and accuracy in pricing American options with stochastic volatility and double jump processes. © 2015 Wiley Periodicals, Inc. Jrl Fut Mark 36:887–901, 2016

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  • Lung‐Fu Chang & Jia‐Hau Guo & Mao‐Wei Hung, 2016. "A Generalization of the Recursive Integration Method for the Analytic Valuation of American Options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 36(9), pages 887-901, September.
    • Handle: RePEc:wly:jfutmk:v:36:y:2016:i:9:p:887-901
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    1. Jia‐Hau Guo & Lung‐Fu Chang, 2020. "Repeated Richardson extrapolation and static hedging of barrier options under the CEV model," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(6), pages 974-988, June.

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