Comparison and survey of finite difference methods for pricing American options under finite activity jump-diffusion models

摘要

Partial integro-differential formulations are often used for pricing American options under jump-diffusion models. A survey on such formulations and their numerical methods is presented. A detailed description of six efficient methods based on a linear complementarity formulation and finite difference discretizations is given. Numerical experiments compare the performance of these methods for pricing American put options under finite activity jump models.