Pricing American Options for Jump Diffusions with Iterated SOR

E. Bayraktar and H. Xing (USA)


Pricing derivatives, American options, jump diffusions, barrier options, finite difference methods.


We develop an efficient method for pricing American op tions for jump diffusion models. The price function is ap proximated 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 algo rithm and compare it with the performance of other meth ods in the literature.

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