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Efficient valuation and exercise boundary of American fractional lookback option in a mixed jump-diffusion model

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  • Zhaoqiang Yang

    (Classic Library Reference Room, P. R. China2Lanzhou University of Finance and Economics, Lanzhou Gansu, P. R. China)

Abstract

This study presents an efficient method for pricing the American fractional lookback option in the case where the stock price follows a mixed jump diffusion fraction Brownian motion. By using Itô formula and Wick–Itô–Skorohod integral, a new market pricing model is built. The fundamental solutions of stochastic parabolic partial differential equations are estimated under the condition of Merton assumptions. The explicit integral representation of early exercise premium and the critical exercise price are also given. Numerical simulation illustrates some notable features of American fractional lookback options.

Suggested Citation

  • Zhaoqiang Yang, 2017. "Efficient valuation and exercise boundary of American fractional lookback option in a mixed jump-diffusion model," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 4(02n03), pages 1-29, June.
    • Handle: RePEc:wsi:ijfexx:v:04:y:2017:i:02n03:n:s2424786317500335
    DOI: 10.1142/S2424786317500335
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    References listed on IDEAS

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