Pricing American options for jump diffusions with iterated SOR

Authors:
Erhan Bayraktar;Hao Xing
Affiliations:
University of Michigan, Ann Arbor, MI;University of Michigan, Ann Arbor, MI
Venue:
FEA '07 Proceedings of the Fourth IASTED International Conference on Financial Engineering and Applications
Year:
2007

Citing 3
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Abstract

We develop an efficient method for pricing American options for jump diffusion models. The price function is approximated by a sequence of functions, each of which is the solution of an optimal stopping problem for diffusion. The convergence of this sequence is uniform and exponentially fast. We present the numerical performance of our algorithm and compare it with the performance of other methods in the literature.