Viscosity Solutions and American Option Pricing in a Stochastic Volatility Model of the Ornstein-Uhlenbeck Type

Abstract

We study the valuation of American-type derivatives in the stochastic volatility model of Barndorff-Nielsen and Shephard (2001). We characterize the value of such derivatives as the unique viscosity solution of an integral-partial differential equation when the payoff function satisfies a Lipschitz condition.