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- yetanotherquant
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american option approximation
Has anyone looked at the Carr-Jarrow-Myneni approximation for pricing American options, but with a term structure of vol ? Specifically, if one were to parameterize the early exercise boundary using a piecewise exponential approximation (a la Ju), how good an approximation is it in practice? (especially for hedges).
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- yetanotherquant
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american option approximation
Apparently, no one has tried this..
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- yetanotherquant
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american option approximation
falsifiability is all fine, but I don't even have any evidence that anyone knows what I am talking about in the first place 
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- yetanotherquant
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american option approximation
That's a thought - a term structure of int rates wont work within this approach, like you say. However, what if we simply just use finer time-stepping in regions where the vol (or exercise boundary) is changing rapidly, as would be the case close to expiry. That would slow down the calc a bit, but shouldn't be too bad, no?