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Contribution Details
| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | American Options with Stochastic Stopping Time Constraints |
| Organization Unit | |
| Authors |
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| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| Journal Title | Applied Mathematical Finance |
| Publisher | Taylor & Francis |
| Geographical Reach | international |
| ISSN | 1350-486X |
| Volume | 16 |
| Number | 3 |
| Page Range | 287 - 305 |
| Date | 2009 |
| Abstract Text | This paper concerns the pricing of American options with stochastic stopping time constraints expressed in terms of the states of a Markov process. Following the ideas of Menaldi et al., we transform the constrained into an unconstrained optimal stopping problem. The transformation replaces the original payoff by the value of a generalized barrier option. We also provide a Monte Carlo method to numerically calculate the option value for multidimensional Markov processes. We adapt the Longstaff-Schwartz algorithm to solve the stochastic Cauchy-Dirichlet problem related to the valuation problem of the barrier option along a set of simulated trajectories of the underlying Markov process. |
| Related URLs | |
| Digital Object Identifier | 10.1080/13504860802645706 |
| Other Identification Number | AN 42746591; merlin-id:466 |
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