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Bermudan Put Option Price in the Jump-Diffusion Model

Posted by Chun-Yuan Chiu

Input:

Show parameters of the jump-diffusion model (annulized)

Risk free interest rate
sigma
lambda
alpha
beta

Show inputs of the FFT pricing method

Number of grid points
Window [-c, c], c =

The settings of the derivative

Initial underlying asset price
Strike price
Time to maturity		Years
Number of partitions
Output:
Put value

The price of a Bermudan put option in the jump-diffusion model, a model proposed by Merton (1976). The calculation is based on the FFT method. The algorithm is a sequence of operations on grid functions. We take uniform grid in the interval [-c, c]. For now the number of grid points can only be a power of 2.

Tagged: FFT, Bermudan Option, Merton Model, Jump-Diffusion Model

 •  Jun 26, 2013  •