Analytical Valuation of American Options on Jump-Diffusion Processes |
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| Authors: | Chandrasekhar Reddy Gukhal |
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| Affiliation: | Johnson Graduate School of Management, Cornell University |
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| Abstract: | We derive analytic formulas for the value of American options when the underlying asset follows a jump-diffusion process and pays continuous dividends. They early exercise premium has a form very different form from that for diffusion processes, and this can be attributed to the discontinuous nature of the price paths. Analytical formulas are derived for several distributions of the jump amplitude. |
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| Keywords: | purely discontinuous processes finite variation processes Brownian excursions infinite activity completely monotone Lévy density |
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