Valuation of American options under the CGMY model

Xu Guo, Yutian LI*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)1529-1539
Number of pages11
JournalQuantitative Finance
Volume16
Issue number10
DOIs
Publication statusPublished - 2 Oct 2016

Scopus Subject Areas

  • Finance
  • Economics, Econometrics and Finance(all)

User-Defined Keywords

  • American option
  • Approximate solution
  • CGMY model
  • Decomposition formula
  • Optimal-exercise boundary

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