Finite expiry Russian options

We consider the Russian option introduced by Shepp and Shiryayev (Ann. Appl. Probab. 3 (1993) 631, Theory Probab. Appl. 39 (1995) 103) but with finite expiry and show that its space-time value function characterizes the unique solution to a free boundary problem. Further, using a method of randomization (or Canadization) due to Carr (Rev. Financ. Stud. 11 (1998) 597) we produce a numerical algorithm for solving the aforementioned free boundary problem.

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Year of publication:	2005
Authors:	Duistermaat, J.J. ; Kyprianou, A.E. ; van Schaik, K.
Published in:	Stochastic Processes and their Applications. - Elsevier, ISSN 0304-4149. - Vol. 115.2005, 4, p. 609-638
Publisher:	Elsevier
Keywords:	American options Russian options Optimal stopping problem Stefan boundary problem Local time-space

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10008874153