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| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | Pricing and Disentanglement of American Puts in the Hyper-Exponential Jump-Diffusion Model |
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| Institution | University of Zurich |
| Series Name | SFI Research Paper |
| Number | 15-08 |
| Number of Pages | 43 |
| Date | 2015 |
| Abstract Text | We analyze American put options in a hyper-exponential jump-diffusion model. Our contribution is threefold. Firstly, by following a maturity randomization approach, we solve the partial integro-differential equation and obtain a tight lower bound for the American option price. Secondly, our method allows us to disentangle the contributions of jump and diffusion for the American early exercise premium. Finally, using American-style options on S&P 100 index from 2007 until 2013, we estimate a range of hyper-exponential specifications and investigate the implications for option pricing and jump-diffusion disentanglement. We find that jump risk accounts for a large part of early exercise premium. |
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