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American Call Options under Jump-Diffusion Processes

In: The Numerical Solution of the American Option Pricing Problem Finite Difference and Transform Approaches

Author

Listed:
  • Carl Chiarella
  • Boda Kang
  • Gunter H. Meyer

Abstract

In this chapter we shall drop the stochastic volatility component from the dynamics by assuming that the variance is constant and merely discuss how to handle the jump term in the transform approach. Option pricing under jump-diffusion dynamics was originally investigated by Merton (1976) for the case of the European option, but here we also consider American options.

Suggested Citation

  • Carl Chiarella & Boda Kang & Gunter H. Meyer, 2014. "American Call Options under Jump-Diffusion Processes," World Scientific Book Chapters, in: The Numerical Solution of the American Option Pricing Problem Finite Difference and Transform Approaches, chapter 3, pages 11-47, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814452625_0003
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