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Title: Pricing and static hedging of American-style options under the jump to default extended CEV model
Authors: Ruas, J. P.
Dias, J. C.
Nunes, J.
Keywords: American options
Static hedging
CEV model
JDCEV model
Early exercise boundary
Issue Date: 2013
Publisher: Elsevier
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.
Peer reviewed: yes
DOI: 10.1016/j.jbankfin.2013.07.019
ISSN: 0378-4266
Accession number: WOS:000326212100005
Appears in Collections:BRU-RI - Artigos em revistas científicas internacionais com arbitragem científica

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