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A Generalization of the Recursive Integration Method for the Analytic Valuation of American Options
Author(s) -
Chang LungFu,
Guo JiaHau,
Hung MaoWei
Publication year - 2016
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.21765
Subject(s) - valuation (finance) , generalization , stochastic volatility , valuation of options , jump , volatility (finance) , jump diffusion , exotic option , mathematical economics , finite difference methods for option pricing , mathematics , econometrics , economics , computer science , black–scholes model , finance , mathematical analysis , quantum mechanics , physics
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