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Discounted nonzero-sum optimal stopping games under Poisson random intervention times

Gapeev, Pavel V. (2024) Discounted nonzero-sum optimal stopping games under Poisson random intervention times. Stochastics: an International Journal of Probability and Stochastic Processes. ISSN 1744-2508

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Identification Number: 10.1080/17442508.2024.2360941

Abstract

We present solutions to some discounted nonzero-sum optimal stopping games of two players related to the perpetual game-type contingent claims with payoffs representing linear functions of the running values of a geometric Brownian motion. It is assumed that the underlying process can be stopped by the both players only at certain random intervention times which coincide with the jump times of the two appropriate independent Poisson processes. The optimal stopping times forming a Nash equilibrium are shown to be the first times at which the underlying process is either below or above certain lower or upper constant boundaries at the jump times of the appropriate Poisson processes. The proof is based on the reductions of the original games to the associated coupled free-boundary problems and the solutions to the latter problems by means of the smooth-fit conditions at the optimal boundaries for every player. We show that the optimal stopping constant lower and upper boundaries are determined as (possibly multiple) solutions to the equivalent coupled systems of arithmetic equations. The obtained results can be interpreted as the rational valuation of some perpetual randomized Bermudian game-type contingent claims in the Black-Merton-Scholes model.

Item Type: Article
Additional Information: © 2024 The Author
Divisions: Mathematics
Subjects: Q Science > QA Mathematics
Date Deposited: 13 May 2024 13:57
Last Modified: 14 Jun 2024 16:03
URI: http://eprints.lse.ac.uk/id/eprint/123037

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