We investigate an optimal stopping problem for the expected value of a discounted payoff on a regime-switching geometric Brownian motion under two constraints on the possible stopping times: only at exogenous random times, and only during a specific regime. The main objectives are to show that an optimal stopping time exists as a threshold type and to derive expressions for the value functions and the optimal threshold. To this end, we solve the corresponding variational inequality and show that its solution coincides with the value functions. Some numerical results are also introduced. Furthermore, we investigate some asymptotic behaviors.

The pricing model for American lookback options can be characterised as a two-dimensional free boundary problem. The main challenge in this problem is the free boundary, which is also the main concern for financial investors. We use a standard technique to reduce the pricing model to a one-dimensional linear complementarity problem on a bounded domain and obtain a corresponding variational inequality. The inequality is discretised by finite differences and finite elements in the temporal and spatial directions, respectively. By enforcing inequality constraints related to the options using Lagrange multipliers, the discretised variational inequality is reformulated as a set of semi-smooth equations, which are solved by a primal-dual active set method. One of the major advantages of our algorithm is that we can obtain the option values and the free boundary simultaneously, and numerical simulations show that our approach is as efficient as some other methods.

We investigate a degenerate parabolic variational inequality arising from optimal continuous exercise perpetual executive stock options. It is also shown in Qin et al. (Continuous-Exercise Model for American Call Options with Hedging Constraints, working paper, available at SSRN: http://dx.doi.org/10.2139/ssrn.2757541) that to make this problem non-trivial the stock's growth rate must be no smaller than the discount rate. Well-posedness of the problem is established in Lai et al. (2015, Mathematical analysis of a variational inequality modeling perpetual executive stock options, Euro. J. Appl. Math., 26 (2015), 193–213), Qin et al. (2015, Regularity free boundary arising from optimal continuous exercise perpetual executive stock options, Interfaces and Free Boundaries, 17 (2015), 69–92), Song & Yu (2011, A parabolic variational inequality related to the perpetual American executive stock options, Nonlinear Analysis, 74 (2011), 6583-6600) for the case when the underlying stock's expected return rate is smaller than the discount rate. In this paper, we consider the remaining case: the discount rate is bigger than the growth rate but no bigger than the return rate. The existence of a unique classical solution as well as a continuous and strictly decreasing free boundary is proved.

An optimal control problem is considered to find a stable surface traction, which minimizes the discrepancy between a given displacement field and its estimation. Firstly, the inverse elastic problem is constructed by variational inequalities, and a stable approximation of surface traction is obtained with Tikhonov regularization. Then a finite element discretization of the inverse elastic problem is analyzed. Moreover, the error estimation of the numerical solutions is deduced. Finally, a numerical algorithm is detailed and three examples in two-dimensional case illustrate the efficiency of the algorithm.

In this paper, we study a quasi-static frictional contact problem for a viscoelastic body with damage effect inside the body as well as normal compliance condition and multi-valued friction law on the contact boundary. The considered friction law generalizes Coulomb friction condition into multi-valued setting. The variational–hemi-variational formulation of the problem is derived and arguments of fixed point theory and surjectivity results for pseudo-monotone operators are applied, in order to prove the existence and uniqueness of solution.

In this paper, we consider the penalty method to solve the unilateral contact with friction between an electro-elastic body and a conductive foundation. Mathematical properties, such as the existence of a solution to the penalty problem and its convergence to the solution of the original problem, are reported. Then, we present a finite elements approximation for the penalised problem and prove its convergence. Finally, we propose an iterative method to solve the resulting finite element system and establish its convergence.

In this paper, we establish the existence and uniqueness of a classical solution of a degenerate parabolic variational inequality of which a strong solution was shown to exist by Song and Yu [21]. The problem arises from optimal stochastic control of exercising continuously perpetual executive stock options (ESOs). We also characterize the basic graph, continuity, and monotonicity properties of the free boundary from which the optimal control strategy can be described precisely.

In this paper, we present and study a mixed variational method in order to approximate,with the finite element method, a Stokes problem with Tresca friction boundary conditions.These non-linear boundary conditions arise in the modeling of mold filling process bypolymer melt, which can slip on a solid wall. The mixed formulation is based on adualization of the non-differentiable term which define the slip conditions. Existence anduniqueness of both continuous and discrete solutions of these problems is guaranteed bymeans of continuous and discrete inf-sup conditions that are proved. Velocity and pressureare approximated by P1 bubble-P1 finite element and piecewise linearelements are used to discretize the Lagrange multiplier associated to the shear stress onthe friction boundary. Optimal a priori error estimates are derived usingclassical tools of finite element analysis and two uncoupled discrete inf-sup conditionsfor the pressure and the Lagrange multiplier associated to the fluid shear stress.

This paper focuses on a one-dimensional wave equation being subjected to a unilateralboundary condition. Under appropriate regularity assumptions on the initial data, a newproof of existence and uniqueness results is proposed. The mass redistribution method,which is based on a redistribution of the body mass such that there is no inertia at thecontact node, is introduced and its convergence is proved. Finally, some numericalexperiments are reported.

Two-phase fluid flows on substrates (i.e. wetting phenomena) are important in many industrial processes, such as micro-fluidics and coating flows. These flows include additional physical effects that occur near moving (three-phase) contact lines. We present a new 2-D variational (saddle-point) formulation of a Stokesian fluid with surface tension that interacts with a rigid substrate. The model is derived by an Onsager type principle using shape differential calculus (at the sharp-interface, front-tracking level) and allows for moving contact lines and contact angle hysteresis and pinning through a variational inequality. Moreover, the formulation can be extended to include non-linear contact line motion models. We prove the well-posedness of the time semi-discrete system and fully discrete method using appropriate choices of finite element spaces. A formal energy law is derived for the semi-discrete and fully discrete formulations and preliminary error estimates are also given. Simulation results are presented for a droplet in multiple configurations to illustrate the method.

The present paper represents a continuation of Sofonea and Matei's paper (Sofonea, M. and Matei, A. (2011) History-dependent quasivariational inequalities arising in contact mechanics. Eur. J. Appl. Math. 22, 471–491). There a new class of variational inequalities involving history-dependent operators was considered, an abstract existence and uniqueness result was proved and it was completed with a regularity result. Moreover, these results were used in the analysis of various frictional and frictionless models of contact. In this current paper we present a penalization method in the study of such inequalities. We start with an example which motivates our study; it concerns a mathematical model which describes the quasistatic contact between a viscoelastic body and a foundation; the material's behaviour is modelled with a constitutive law with long memory, the contact is frictionless and is modelled with a multivalued normal compliance condition and unilateral constraint. Then we introduce the abstract variational inequalities together with their penalizations. We prove the unique solvability of the penalized problems and the convergence of their solutions to the solution of the original problem, as the penalization parameter converges to zero. Finally, we turn back to our contact model, apply our abstract results in the study of this problem and provide their mechanical interpretation.

In this paper, we develop a supply chain network equilibrium model in which electronic commerce in the presence of both B2B (business-to-business) and B2C (business-to-consumer) transactions, multiperiod decision-making and multicriteria decision-making are integrated. The model consists of three tiers of decision-makers (manufacturers, retailers and consumers at demand markets) who compete within a tier but may cooperate between tiers. Both manufacturers and retailers are concerned with maximization of profit as well as minimization of risk, whereas consumers take both the prices charged by manufacturers and retailers, along with the corresponding costs of transacting, in making their consumption decisions. Increasing relationship levels are assumed to decrease costs of transacting as well as risk costs. Establishing and maintaining these relationship levels incur some costs that have to be borne by the various decision-makers. We study the interaction among different tiers of decision-makers, describe their multicriteria decision-making behavior and derive the optimality conditions as well as the equilibrium conditions which are then shown to satisfy a finite-dimensional variational inequality problem. We then establish qualitative properties of the equilibrium model under some reasonable assumptions and illustrate the model with several numerical examples.

Moudafi and Maingé [Towards viscosity approximations of hierarchical fixed-point problems, Fixed Point Theory Appl. (2006), Art. ID 95453, 10pp] and Xu [Viscosity method for hierarchical fixed point approach to variational inequalities, Taiwanese J. Math.13(6) (2009)] studied an implicit viscosity method for approximating solutions of variational inequalities by solving hierarchical fixed point problems. The approximate solutions are a net (xs,t) of two parameters s,t∈(0,1), and under certain conditions, the iterated lim t→0lim s→0xs,t exists in the norm topology. Moudafi, Maingé and Xu stated the problem of convergence of (xs,t) as (s,t)→(0,0) jointly in the norm topology. In this paper we further study the behaviour of the net (xs,t); in particular, we give a negative answer to this problem.

In this paper, we introduce an iterative scheme using an extragradient method for finding a common element of the set of solutions of a generalized equilibrium problem, the set of fixed points of a nonexpansive mapping and the set of the variational inequality for a monotone, Lipschitz-continuous mapping. We obtain a weak convergence theorem for three sequences generated by this process. Based on this result, we also obtain several interesting results. The results in this paper generalize and extend some well-known weak convergence theorems in the literature.

In this paper we study a variational inequality in which the principal operator is a generalised Laplacian with fast growth at infinity and slow growth at 0. By defining appropriate sub-and super-solutions, we show the existence of solutions and extremal solutions of this inequality above the subsolutions or between the sub- and super-solutions.

In this paper we show that a linear variational inequality over an infinite dimensional real Hilbert spaceadmits solutions for every nonempty bounded closed and convex set, if and only if the linear operator involved in the variational inequality is pseudo-monotone in the sense of Brezis.

In this work we study the nonlinear complementarity problem on thenonnegative orthant. This is done by approximating its equivalentvariational-inequality-formulation by a sequence of variationalinequalities with nested compact domains. This approach yieldssimultaneously existence, sensitivity, and stability results. Byintroducing new classes of functions and a suitable metric forperforming the approximation, we provide bounds for the asymptoticset of the solution set and coercive existence results, which extendand generalize most of the existing ones from the literature. Suchresults are given in terms of some sets called coercive existencesets, which we also employ for obtaining new sensitivity andstability results. Topological properties of thesolution-set-mapping and bounds for it are also established.Finally, we deal with the piecewise affine case.

Motivated by the pricing of American options for baskets weconsider a parabolic variational inequality in a boundedpolyhedral domain $\Omega\subset\mathbb{R}^d$ with a continuous piecewisesmooth obstacle. We formulate a fully discrete method by usingpiecewise linear finite elements in space and the backward Eulermethod in time. We define an a posteriori error estimator and showthat it gives an upper bound for the error inL2(0,T;H1 (Ω)). The error estimator is localized in thesense that the size of the elliptic residual is only relevant inthe approximate non-contact region, and the approximability of theobstacle is only relevant in the approximate contact region. Wealso obtain lower bound results for the space error indicators inthe non-contact region, and for the time error estimator.Numerical results for d=1,2 show that the error estimator decayswith the same rate as the actual error when the space meshsize hand the time step τ tend to zero. Also, the error indicatorscapture the correct behavior of the errors in both the contact andthe non-contact regions.

We consider the use of finite volume methods for the approximation of aparabolic variational inequality arising in financial mathematics.We show, under some regularityconditions, the convergence of the upwind implicit finite volume schemeto a weak solution of the variational inequality in a bounded domain.Some results, obtained in comparison with other methodson two dimensional cases, show that finite volume schemes can be accurate and efficient.

Consider a geometric Brownian motion Xt(ω) with drift. Suppose that there is an independent source that sends signals at random times τ1 < τ2 < ⋯. Upon receiving each signal, a decision has to be made as to whether to stop or to continue. Stopping at time τ will bring a reward Sτ, where St = max(max0≤u≤tXu, s) for some constant s ≥ X0. The objective is to choose an optimal stopping time to maximize the discounted expected reward E[e−rτiSτi | X0 = x, S0 = s], where r is a discount factor. This problem can be viewed as a randomized version of the Bermudan look-back option pricing problem. In this paper, we derive explicit solutions to this optimal stopping problem, assuming that signal arrival is a Poisson process with parameter λ. Optimal stopping rules are differentiated by the frequency of the signal process. Specifically, there exists a threshold λ* such that if λ>λ*, the optimal stopping problem is solved via the standard formulation of a ‘free boundary’ problem and the optimal stopping time τ* is governed by a threshold a* such that τ* = inf{τn: Xτn≤a*Sτn}. If λ≤λ* then it is optimal to stop immediately a signal is received, i.e. at τ* = τ1. Mathematically, it is intriguing that a smooth fit is critical in the former case while irrelevant in the latter.