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A generalization of the Barone‐Adesi and Whaley approach for the analytic approximation of American options
Author(s) -
Guo JiaHau,
Hung MaoWei,
So LehChyan
Publication year - 2009
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.20361
Subject(s) - generalization , quadratic equation , scheme (mathematics) , valuation of options , mathematical economics , volatility (finance) , jump , stochastic volatility , binomial options pricing model , mathematics , economics , econometrics , physics , mathematical analysis , quantum mechanics , geometry
This article introduces a general quadratic approximation scheme for pricing American options based on stochastic volatility and double jump processes. This quadratic approximation scheme is a generalization of the Barone‐Adesi and Whaley approach and nests several option models. Numerical results show that this quadratic approximation scheme is efficient and useful in pricing American options. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 29:478–493, 2009