Optimal exercise boundary via intermediate function with jump risk

Beom Jin Kim, Yong Ki Ma, Hi Jun Choe

Research output: Contribution to journalArticle

Abstract

In this paper, we present a simple numerical method to determine the optimal exercise boundary for American put option with jump risk. Our intermediate function obtained by the partial integro-differential equation can easily determine the optimal exercise boundary. We use finite difference method characterized by explicit scheme in continuation region and extrapolation near optimal exercise boundary. Finally, we present several numerical results which illustrate comparison to other methods.

Original languageEnglish
Pages (from-to)779-792
Number of pages14
JournalJapan Journal of Industrial and Applied Mathematics
Volume34
Issue number3
DOIs
Publication statusPublished - 2017 Nov 1

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Integrodifferential equations
Extrapolation
Finite difference method
Exercise
Numerical methods
Jump
Partial Integro-differential Equation
Explicit Scheme
Continuation
Difference Method
Finite Difference
Numerical Methods
Numerical Results

All Science Journal Classification (ASJC) codes

  • Engineering(all)
  • Applied Mathematics

Cite this

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Optimal exercise boundary via intermediate function with jump risk. / Kim, Beom Jin; Ma, Yong Ki; Choe, Hi Jun.

In: Japan Journal of Industrial and Applied Mathematics, Vol. 34, No. 3, 01.11.2017, p. 779-792.

Research output: Contribution to journalArticle

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