Optimal Multiple Stopping of Linear Diffusions

Optimal Multiple Stopping of Linear Diffusions

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Article ID: iaor200954169
Country: United States
Volume: 33
Issue: 2
Start Page Number: 446
End Page Number: 460
Publication Date: May 2008
Journal: Mathematics of Operations Research
Authors: ,
Keywords: diffusion process, optimal stopping
Abstract:

Motivated by the analysis of financial instruments with multiple exercise rights of American type and mean reverting underlyers, we formulate and solve the optimal multiple–stopping problem for a general linear regular diffusion process and a general reward function. Instead of relying on specific properties of geometric Brownian motion and call and put option payoffs as in most of the existing literature, we use general theory of optimal stopping for diffusions, and we illustrate the resulting optimal exercise policies by concrete examples and constructive recipes.

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