EURO-Online login
- New to EURO? Create an account
- I forgot my username and/or my password.
- Help with cookies
(important for IE8 users)
731. Perpetual American Options in Two-Dimensional Diffusion Models
Invited abstract in session MB-33: Dynamics of the Firm I, stream Optimal Control Theory and Applications.
Monday, 10:30-12:00Room: 42 (building: 303A)
Authors (first author is the speaker)
| 1. | Pavel Gapeev
|
| LSE |
Abstract
We study the perpetual American options optimal stopping problem in two-dimensional diffusion models with linear and multiplicative payoff structure. It is assumed that the risky asset prices are modelled as geometric Brownian motions driven by constantly correlated standard Brownian motions. We find closed formulas for the value functions expressed in terms of the optimal stopping boundaries which in turn are shown to be unique solutions to nonlinear Fredholm integral equations. A key argument in the existence proof is played by pointwise maximisations of the expression obtained by the change-of-measure arguments. These provide tight bounds on the optimal stopping boundaries as well as describes its shape and asymptotic behaviour for small or large coordinate values of the risky asset prices. This is a joint work with Goran Peskir (Manchester).
Keywords
- Stochastic Optimization
- Optimization in Financial Mathematics
- Optimal Control
Status: accepted
Back to the list of papers