%0 Journal Article
%T PRICING PERPETUAL AMERICAN OPTIONS UNDER
REGIME SWITCHING JUMP DIFFUSION MODELS
%J Journal of Advanced Mathematical Modeling
%I Shahid Chamran University of Ahvaz
%Z 2251-8088
%A Heidari, Saghar
%A Azari, Hossein
%D 2022
%\ 12/22/2022
%V 12
%N 4
%P 477-493
%! PRICING PERPETUAL AMERICAN OPTIONS UNDER
REGIME SWITCHING JUMP DIFFUSION MODELS
%K Perpetual American option
%K Jump-Diffusion model
%K Regime-Switching model
%K Finite difference method
%K Discrete maximum principle
%R 10.22055/jamm.2022.39634.1999
%X In this article, we examine the issue of pricing perpetual American option with a differential equation approach with free boundary properties. To describe the underlying asset dynamics in these options, we use the feature of jump-diffusion models under regime switching. In pricing these perpetual options, due to the possibility of early application, we need to solve the ordinary integro-differential equation with a free boundary. For this purpose, we write the equation created from this model first as a linear complementarity problems and then discretize by using the finite difference method. We use linear interpolation to approximate theintegral term. The discrete maximum principle is applied to the linear complementarityproblems to obtain the error estimates. We also illustrate some numerical results in orderto demonstrate and compare the accuracy of the method for our problem.
%U https://jamm.scu.ac.ir/article_17937_98dbe87004e38c0329c24fac60a382ab.pdf