A mathematical modeling for the lookback option with jump-diffusion using binomial tree method

JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS

卷:235

Article

Kim, Kwang Ik²  Park, Hyun Suk³  Qian, Xiao-song¹ 

[1] Yangzhou Univ, Sch Math Sci, Yangzhou 225002, Peoples R China

[2] Pohang Univ Sci & Technol, Dept Math, Pohang 790784, South Korea

[3] Hallym Univ, Dept Finance & Informat Stat, Chunchon 200702, South Korea

关键词: Binomial tree method;    Lookback option;    Jump-diffusion model;    Viscosity solution;   

DOI  :  10.1016/j.cam.2011.05.002

来源: Elsevier

【 摘 要 】

The binomial tree method (BTM), first proposed by Cox et al. (1979) [4] in diffusion models and extended by Amin (1993) [9] to jump-diffusion models, is one of the most popular approaches to pricing options. In this paper, we present a binomial tree method for lookback options in jump-diffusion models and show its equivalence to certain explicit difference scheme. We also prove the existence and convergence of the optimal exercise boundary in the binomial tree approximation to American lookback options and give the terminal value of the genuine exercise boundary. Further, numerical simulations are performed to illustrate the theoretical results. (C) 2011 Elsevier B.V. All rights reserved.

【 授权许可】

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