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Publication Detailed Description
Journal Title
Journal of Banking and Finance
Year (definitive publication)
2013
Language
English
Country
Netherlands
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Abstract
This paper prices (and hedges) American-style options through the static hedge approach (SHP) proposed by Chung and Shih (2009) and extends the literature in two directions. First, the SHP approach is generalized to the jump to default extended CEV UDCEV) model of Carr and Linetsky (2006), and plain-vanilla American-style options on defaultable equity are priced. The robustness and efficiency of the proposed pricing solutions are compared with the optimal stopping approach offered by Nunes (2009), under both the JDCEV framework and the nested constant elasticity of variance (CEV) model of Cox (1975), using different elasticity parameter values. Second, the early exercise boundary near expiration is derived under the JDCEV model.
Acknowledgements
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Keywords
American options,Static hedging,CEV model,JDCEV model,Early exercise boundary
Fields of Science and Technology Classification
- Economics and Business - Social Sciences
Funding Records
| Funding Reference | Funding Entity |
|---|---|
| PTDC/EGE-ECO/099255/2008 | Fundação para a Ciência e a Tecnologia |
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