A Numerical Approach to Pricing Exchange Options under Stochastic Volatility and Jump-Diffusion Dynamics

We consider a method of lines (MOL) approach to determine prices of European and American exchange options when underlying asset prices are modelled with stochastic volatility and jump-diffusion dynamics. As the MOL, as with any other numerical scheme for PDEs, becomes increasingly complex when higher dimensions are involved, we first simplify the problem by transforming the exchange option into a call option written on the ratio of the yield processes of the two assets. This is achieved by taki...