American and European options in multi-factor jump-diffusion models, near expiry (Q2271720)

A general formula for the time decay \(\theta\) of contingent claims of European type in multi-factor jump-diffusion models is derived. Using this formula and a put-call parity argument, the limit of the no-exercise region of American options is described and it is shown that, in the presence of jumps, the no-exercise region near expiry can be significantly larger than in the pure Gaussian case. Explicit formulae are derived for the standard call and put options, exchange options, and bond options affine term structure models.