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The Compound Option Approach to American Options on Jump-Diffusions


  • Chandrasekhar Reddy Gukhal


We derive analytical valuation formulas for compound options when the underlying asset follows a jump-diffusion process. We then apply these results to value extendible options, American call options on stocks that follow jump-diffusion processes and pay discrete dividends, and American options on assets that evolve as jump-diffusion processes and pay continuous proportional dividends. Numerical implementation is in progress.

Suggested Citation

  • Chandrasekhar Reddy Gukhal, 2001. "The Compound Option Approach to American Options on Jump-Diffusions," Computing in Economics and Finance 2001 181, Society for Computational Economics.
  • Handle: RePEc:sce:scecf1:181

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    References listed on IDEAS

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    More about this item


    Compound options; american options; jump-diffusions;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets


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