A generalization of the Barone‐Adesi and Whaley approach for the analytic approximation of American options |
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| Authors: | Jia‐Hau Guo Mao‐Wei Hung Leh‐Chyan So |
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| Institution: | 1. College of Management, National Chiao Tung University, Hsinchu, Taiwan;2. College of Management, National Taiwan University, Taipei, Taiwan;3. College of Technology Management, National Tsing Hua University, Hsinchu, Taiwan |
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| Abstract: | 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 |
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