Publication:
Pricing of American put option under a jump diffusion process with stochastic volatility in an incomplete market

1

Issued Date

2014-01-01

Resource Type

Article

ISSN

16870409
10853375

DOI

10.1155/2014/236091

Other identifier(s)

2-s2.0-84896472379

Rights

Mahidol University

Rights Holder(s)

SCOPUS

Bibliographic Citation

Abstract and Applied Analysis. Vol.2014, (2014)

Suggested Citation

Shuang Li, Yanli Zhou, Xinfeng Ruan, B. Wiwatanapataphee Pricing of American put option under a jump diffusion process with stochastic volatility in an incomplete market. Abstract and Applied Analysis. Vol.2014, (2014). doi:10.1155/2014/236091 Retrieved from: https://repository.li.mahidol.ac.th/handle/123456789/34143

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Title

Pricing of American put option under a jump diffusion process with stochastic volatility in an incomplete market

Author(s)

Shuang Li
 Yanli Zhou
 Xinfeng Ruan
 B. Wiwatanapataphee

Other Contributor(s)

Curtin University
 Southwest University of Finance and EcoNomics
 Zhongnan University of EcoNomics and Law
 Mahidol University

Abstract

We study the pricing of American options in an incomplete market in which the dynamics of the underlying risky asset is driven by a jump diffusion process with stochastic volatility. By employing a risk-minimization criterion, we obtain the Radon-Nikodym derivative for the minimal martingale measure and consequently a linear complementarity problem (LCP) for American option price. An iterative method is then established to solve the LCP problem for American put option price. Our numerical results show that the model and numerical scheme are robust in capturing the feature of incomplete finance market, particularly the influence of market volatility on the price of American options. © 2014 Shuang Li et al.

Keyword(s)

Mathematics

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URI

https://repository.li.mahidol.ac.th/handle/123456789/34143

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Scopus 2011-2015