Cookies?
Library Header Image
LSE Research Online LSE Library Services

On the structure of discounted optimal stopping problems for one-dimensional diffusions

Gapeev, Pavel V. and Lerche, Hans Rudolf (2011) On the structure of discounted optimal stopping problems for one-dimensional diffusions. Stochastics: an International Journal of Probability and Stochastic Processes, 83 (4-6). pp. 537-554. ISSN 1744-2508

Full text not available from this repository.

Abstract

We connect two approaches for solving discounted optimal stopping problems for one-dimensional time-homogeneous regular diffusion processes on infinite time intervals. The optimal stopping rule is assumed to be the first exit time of the underlying process from a region restricted by two constant boundaries. We provide an explicit decomposition of the reward process into a product of a gain function of the boundaries and a uniformly integrable martingale inside the continuation region. This martingale plays a key role for stating sufficient conditions for the optimality of the first exit time. We also consider several illustrating examples of rational valuation of perpetual American strangle options. © 2011 Copyright Taylor and Francis Group, LLC.

Item Type: Article
Official URL: http://dx.doi.org/10.1080/17442508.2010.532874
Additional Information: © 2011 Copyright Taylor & Francis
Library of Congress subject classification: Q Science > QA Mathematics
Sets: Departments > Mathematics
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 20 Apr 2012 09:06
URL: http://eprints.lse.ac.uk/43299/

Actions (login required)

Record administration - authorised staff only Record administration - authorised staff only