2007/06/15 by Erhan Bayraktar, Hao Xing, Bayraktar, Erhan +1
Economics, Econometrics and Finance · #Capital Investment and Risk Analysis #Computational Engineering #FOS: Computer and information sciences #Finance #Stochastic processes and financial applications #and Science (cs.CE)
paper · pdf · doi:10.48550/arxiv.0706.2331
openalex publication_date 2007/06/15 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We approximate the price of the American put for jump diffusions by a sequence of functions, which are computed iteratively. This sequence converges to the price function uniformly and exponentially fast. Each element of the approximating sequence solves an optimal stopping problem for geometric Brownian motion, and can be numerically computed using the classical finite difference methods. We prove the convergence of this numerical scheme and present examples to illustrate its performance.