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Discounted optimal stopping for diffusions: free-boundary versus martingale approach

Gapeev, Pavel V. and Lerche, Hans Rudolf (2009) Discounted optimal stopping for diffusions: free-boundary versus martingale approach. CDAM research report, LSE-CDAM-2009-03. CDAM@LSE, London, UK.

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Abstract

The free-boundary and the martingale approach are competitive methods of solving discounted optimal stopping problems for one-dimensional time-homogeneous regular diffusion processes on infinite time intervals. We provide a missing link showing the equivalence of these approaches for a problem, where the optimal stopping time is equal to the rst exit time of the underlying process from a region restricted by two constant boundaries. We also consider several illustrating examples including the rational valuation of the perpetual American strangle option.

Item Type: Monograph (Report)
Official URL: http://www.cdam.lse.ac.uk/Reports/reports2009.html
Additional Information: © 2009 The authors
Library of Congress subject classification: H Social Sciences > HA Statistics
Sets: Departments > Mathematics
Research centres and groups > Computational, Discrete and Applicable Mathematics@LSE (CDAM)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: LSE-CDAM-2009-03
Date Deposited: 31 Mar 2010 13:52
URL: http://eprints.lse.ac.uk/27622/

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