On a Monotone Dynamic Approach to Optimal Stopping Problems for Continuous-Time Markov Chains

Miclo, Laurent and Villeneuve, Stéphane (2019) On a Monotone Dynamic Approach to Optimal Stopping Problems for Continuous-Time Markov Chains. TSE Working Paper, n. 19-1009, Toulouse

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Abstract

This paper is concerned with the solution of the optimal stopping problem associated to the valuation of Perpetual American options driven by continuous time Markov chains. We introduce a new dynamic approach for the numerical pricing of this type of American options where the main idea is to build a monotone sequence of almost excessive functions that are associated to hitting times of explicit sets. Under minimal assumptions about the payoff and the Markov chain, we prove that the value function of an American option is characterized by the limit of this monotone sequence.

Item Type: Monograph (Working Paper)
Language: English
Date: April 2019
Place of Publication: Toulouse
Uncontrolled Keywords: Markov chains, Optimal Stopping, American option pricing
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 23 Apr 2019 09:46
Last Modified: 23 Apr 2019 09:46
OAI ID: oai:tse-fr.eu:122933
URI: http://publications.ut-capitole.fr/id/eprint/32361

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