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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
  • Markus Leippold
  • Nikola Vasiljevic
Item Subtype Original Work
Refereed Yes
Status Published in final form
Language
  • English
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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