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Contribution Details
Type | Journal Article |
Scope | Discipline-based scholarship |
Title | Pricing and Disentanglement of American Puts in the Hyper-Exponential Jump-Diffusion Model |
Organization Unit | |
Authors |
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Item Subtype | Original Work |
Refereed | Yes |
Status | Published in final form |
Language |
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Journal Title | Journal of Banking and Finance |
Publisher | Elsevier |
Geographical Reach | international |
ISSN | 0378-4266 |
Volume | 77 |
Page Range | 78 - 94 |
Date | 2017 |
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. |
Related URLs | |
Digital Object Identifier | 10.1016/j.jbankfin.2017.01.014 |
Other Identification Number | merlin-id:14475 |
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