American Call Options Under Jump-Diffusion Processes - A Fourier Transform Approach

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dc.contributor.author Chiarella, C
dc.contributor.author Ziogas, A
dc.date.accessioned 2010-05-28T09:53:09Z
dc.date.issued 2009-01
dc.identifier.citation Applied Mathematical Finance, 2009, 16 (1), pp. 37 - 79
dc.identifier.issn 1350-486X
dc.identifier.other C1 en_US
dc.identifier.uri http://hdl.handle.net/10453/9965
dc.description.abstract We consider the American option pricing problem in the case where the underlying asset follows a jump-diffusion process. We apply the method of Jamshidian to transform the problem of solving a homogeneous integro-partial differential equation (IPDE) on a region restricted by the early exercise (free) boundary to that of solving an inhomogeneous IPDE on an unrestricted region. We apply the Fourier transform technique to this inhomogeneous IPDE in the case of a call option on a dividend paying underlying to obtain the solution in the form of a pair of linked integral equations for the free boundary and the option price. We also derive new results concerning the limit for the free boundary at expiry. Finally, we present a numerical algorithm for the solution of the linked integral equation system for the American call price, its delta and the early exercise boundary. We use the numerical results to quantify the impact of jumps on American call prices and the early exercise boundary.
dc.publisher Routledge
dc.relation.hasversion Accepted manuscript version en_US
dc.relation.isbasedon 10.1080/13504860802221672
dc.rights This is an electronic version of an article published in Applied Mathematical Finance is available online at: www.tandfonline.com with the open URL of your article Applied Mathematical Finance Volume 16, Issue 1, 2009 http://dx.doi.org/10.1080/13504860802221672 en_US
dc.title American Call Options Under Jump-Diffusion Processes - A Fourier Transform Approach
dc.type Journal Article
dc.description.version Published
dc.parent Applied Mathematical Finance
dc.journal.volume 1
dc.journal.volume 16
dc.journal.number 1 en_US
dc.publocation UK en_US
dc.identifier.startpage 37 en_US
dc.identifier.endpage 79 en_US
dc.cauo.name BUS.School of Finance and Economics en_US
dc.conference Verified OK en_US
dc.for 0102 Applied Mathematics
dc.personcode 001068
dc.personcode 716350
dc.percentage 100 en_US
dc.classification.name Applied Mathematics en_US
dc.classification.type FOR-08 en_US
dc.edition en_US
dc.custom en_US
dc.date.activity en_US
dc.location.activity en_US
dc.description.keywords American options; jump-diffusion; Volterra integral equation; free boundary problem; Fourier transform en_US
dc.description.keywords Science & Technology
dc.description.keywords Technology
dc.description.keywords Computer Science, Hardware & Architecture
dc.description.keywords Computer Science, Information Systems
dc.description.keywords Computer Science, Software Engineering
dc.description.keywords Computer Science, Theory & Methods
dc.description.keywords Computer Science
dc.description.keywords COMPUTER SCIENCE, HARDWARE & ARCHITECTURE
dc.description.keywords COMPUTER SCIENCE, INFORMATION SYSTEMS
dc.description.keywords COMPUTER SCIENCE, SOFTWARE ENGINEERING
dc.description.keywords COMPUTER SCIENCE, THEORY & METHODS
dc.description.keywords time series classification
dc.description.keywords segment-based features
dc.description.keywords matching
dc.description.keywords RECOGNITION
dc.description.keywords MODELS
dc.description.keywords American options
dc.description.keywords jump-diffusion
dc.description.keywords Volterra integral equation
dc.description.keywords free boundary problem
dc.description.keywords Fourier transform
pubs.embargo.period Not known
pubs.organisational-group /University of Technology Sydney
pubs.organisational-group /University of Technology Sydney/Faculty of Business
pubs.organisational-group /University of Technology Sydney/Faculty of Business/Finance
pubs.organisational-group /University of Technology Sydney/Strength - Quantitative Finance
utslib.copyright.status Open Access
utslib.copyright.date 2015-04-15 12:23:47.074767+10
utslib.collection.history General (ID: 2)


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