In this study, we use the McKean's integral equation to evaluate the American option price for the constant jump diffusion models. The early exercise boundary is ap- proximated by a multipiece exponential function. Approximate closed-form solution of the no arbitrage American option prices are obtained . Simulation studies are performed to evaluate accuracy of the derived formula. The results show that the proposed method improves the pricing of American option for larger dividend rates. Keywords-American options; early exercise boundary; early exercise premium; jump diffusion model; McKean's equation.
['Meihui Guo', 'Yu-Chun Chang', 'Shih-Feng Huang']
Pricing American Options in a Jump Diffusion Model