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Bounds for the American perpetual put on a stock index

Part of: Stochastic processes Mathematical economics Markov processes Applications

Published online by Cambridge University Press:  14 July 2016

V. Paulsen
V. Paulsen*
Affiliation:
Universität Kiel
*
∗ Postal address: Universität Kiel, Mathematisches Seminar, Ludewig Meyn Str. 4, D-24098 Kiel, Germany. Email address: [email protected]
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Abstract

Let us consider n stocks with dependent price processes each following a geometric Brownian motion. We want to investigate the American perpetual put on an index of those stocks. We will provide inner and outer boundaries for its early exercise region by using a decomposition technique for optimal stopping.

Keywords

mathematical financeoptimal stoppingAmerican optionindex optionearly exercise region

MSC classification

Primary: 60G40: Stopping times; optimal stopping problems; gambling theory
Secondary: 91B24: Price theory and market structure 62P05: Applications to actuarial sciences and financial mathematics 60J70: Applications of Brownian motions and diffusion theory (population genetics, absorption problems, etc.)
Type
Research Papers
Information
Journal of Applied Probability , Volume 38 , Issue 1 , March 2001 , pp. 55 - 66
Copyright
Copyright © by the Applied Probability Trust 2001 

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References

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