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Valuation of American options under the CGMY model

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  • Xu Guo
  • Yutian Li

Abstract

In the present work, we concentrate on the analytical study of American options under the CGMY process. The decomposition formula of the American option and the integral equation for the optimal-exercise boundary are established in explicit forms. Moreover, an analytical approximation formula is obtained for the American value. This approximation is valid when time to maturity is either very short or very long. Numerical simulations are provided for European options, optimal-exercise prices and approximate values for American options.

Suggested Citation

  • Xu Guo & Yutian Li, 2016. "Valuation of American options under the CGMY model," Quantitative Finance, Taylor & Francis Journals, vol. 16(10), pages 1529-1539, October.
    • Handle: RePEc:taf:quantf:v:16:y:2016:i:10:p:1529-1539
    DOI: 10.1080/14697688.2016.1158854
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