We introduce a new analytical approach to price American options. Using an explicit and intuitive proxy for the exercise rule, we derive tractable pricing formulas using a short-maturity asymptotic expansion. Depending on model parameters, this method can accurately price options with...

We derive a closed-form asymptotic expansion formula for option implied volatility under a two-factor jump-diffusion stochastic volatility model when time-to-maturity is small. Based on numerical experiments we describe the range of time-to-maturity and moneyness for which the approximation is...

In this paper we propose analytical approximations for computing implied volatilities when time-to-maturity t is small. The analysis is performed in the framework of a two-factor model with local and stochastic volatility. We describe an algorithm for building the power series approximation of...

In this paper we applied the model of individual choice under ambiguity proposed by Zhang (2002) in the context of the market model of asset returns of Kwon (1985). The ambiguity is introduced via unknown volatilities of assets residual leading to two factor CAPM. We test this model on US stock...