Download or read book An Iterative Method for Pricing American Options Under Jump-Diffusion Models written by Santtu Salmi and published by . This book was released on 2012 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose an iterative method for pricing American options under jump-diffusion models. A finite difference discretization is performed on the partial integro-differential equation, and the American option pricing problem is formulated as a linear complementarity problem (LCP). Jump-diffusion models include an integral term, which causes the resulting system to be dense. We propose an iteration to solve the LCPs efficiently and prove its convergence. Numerical examples with Kou's and Merton's jump-diffusion models show that the resulting iteration converges rapidly.