Valuation of American options under the CGMY model. Issue 10 (2nd October 2016)

• Record Type: Journal Article
• Authors: Guo, Xu; Li, Yutian
• Is Part Of: Quantitative finance. Volume 16:Issue 10(2016)
• Page Start: 1529
• Page End: 1539
• Publication Date: 2016-10-02
• Subjects: CGMY model -- American option -- Decomposition formula -- Optimal-exercise boundary -- Approximate solution; G12; Finance -- Periodicals; Business mathematics -- Periodicals; Finance -- Mathematical models -- Periodicals; Investments -- Mathematics -- Periodicals; Economics -- Periodicals; Finances -- Modèles mathématiques -- Périodiques; 332.015118
• DOI: 10.1080/14697688.2016.1158854
• Languages: English
• ISSNs: 1469-7688

Abstract

Abstract : In the present work, we concentrate on the analytical study of American options under the CGMY process. The decomposition formula of the American option and the integral equation for the optimal-exercise boundary are established in explicit forms. Moreover, an analytical approximation formula is obtained for the American value. This approximation is valid when time to maturity is either very short or very long. Numerical simulations are provided for European options, optimal-exercise prices and approximate values for American options.