Resource title

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

Resource image

image for OpenScout resource :: On the structure of discounted optimal stopping problems for one-dimensional diffusions

Resource description

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.

Resource author

Resource publisher

Resource publish date

Resource language

en

Resource content type

Resource resource URL

http://eprints.lse.ac.uk/43299/

Resource license