Pricing American Options under Levy Jump Models: A Multidimensional Transform Method

This article presents a transform-based approach for pricing American options under Levy models with stochastic volatility and jumps. With the transform approach introduced in this article, simple, path-independent lattices can be constructed for three classes of option pricing models, including stochastic volatility jump models, Levy jump models, and Levy jump models with stochastic volatility. Our transform-based approach is computationally efficient and notably accurate. To the best of our knowledge, this article is the first to study path-independent lattices for pricing American options under Levy models with stochastic volatility and jumps.