An optimal stopping problem in a diffusion-type model with delay

We present an explicit solution to an optimal stopping problem in a model described by a stochastic delay differential equation with an exponential delay measure. The method of proof is based on reducing the initial problem to a free-boundary problem and solving the latter by means of the smooth-fit condition. The problem can be interpreted as pricing special perpetual average American put options in a diffusion-type model with delay.

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Year of publication:	2005-02
Authors:	Gapeev, Pavel V. ; Reiß, Markus
Institutions:	Sonderforschungsbereich 649: Ökonomisches Risiko, Wirtschaftswissenschaftliche Fakultät
Subject:	Optimal stopping \| stochastic delay differential equation \| diffusion process \| sufficient statistic \| free-boundary problem \| smooth fit \| Girsanov’s theorem \| Ito’s formula

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Extent:	application/pdf
Series:	SFB 649 Discussion Papers.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number SFB649DP2005-005 12 pages
Classification:	C61 - Optimization Techniques; Programming Models; Dynamic Analysis
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005652779