Journal of Guangdong University of Technology ›› 2018, Vol. 35 ›› Issue (03): 87-89,112.doi: 10.12052/gdutxb.170175

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An Efficient Algorithm for American Option Pricing in the Jump-Diffusion Model

Yang Shu-ling   

  1. School of Applied Mathematics, Guangdong University of Technology, Guangzhou 510090, China
  • Received:2017-12-20 Online:2018-05-09 Published:2018-05-24
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Abstract: The efficient numerical methods for solving the American option pricing model under jump-diffusion is studied. First of all, the high accuracy compact difference scheme is applied to discrete the option pricing model in the spatial direction, and discrete the temporal variable of the resulting ordinary differential equation to the linear complementarity problem (LCP). The approximation value of option price is obtained by solving the LCP. Finally, in order to overcome the nonsmoothness of payoff function, the singularity separating method is utilized for the American option pricing model to improve the accuracy of calculation. Numerical examples demonstrate the superiority of the algorithm.

Key words: American option, high accuracy compact difference scheme, singularity separating method

CLC Number: 

  • O241.8
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