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Numerical analysis of American option pricing in a Jump-diffusion model. (English) Zbl 0883.90021

Summary: We discuss pricing formulae for American options in Merton’s jump-diffusion model. With the help of variational inequalities, we derive some regularity properties of price functions. Using the finite difference method, a discretization scheme is presented and a convergence theorem for the first-order derivatives is proved. Numerical methods and results are also discussed.

MSC:

91G20 Derivative securities (option pricing, hedging, etc.)
60J75 Jump processes (MSC2010)
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