Valuing American-style options under the CEV model: an integral representation based method

摘要

This article derives a new integral representation of the early exercise boundary for valuing American-style options under the constant elasticity of variance (CEV) model. An important feature of this novel early exercise boundary characterization is that it does not involve the usual (time) recursive procedure that is commonly employed in the so-called integral representation approach well known in the literature. Our non-time recursive pricing method is shown to be analytically tractable under the local volatility CEV process and the numerical experiments demonstrate its robustness and accuracy.