Finite expiry Russian options

J J Duistermaat; A E Kyprianou; K van Schaik

doi:10.1016/j.spa.2004.11.005

Finite expiry Russian options

J J Duistermaat, A E Kyprianou, K van Schaik

Department of Mathematical Sciences

Research output: Contribution to journal › Article › peer-review

13 Citations (SciVal)

Abstract

We consider the Russian option introduced by Shepp and Shiryayev (Ann. Appl. Probab. 3 (1993) 631, Theory Probab. Appl. 39 (1995) 103) but with finite expiry and show that its space-time value function characterizes the unique solution to a free boundary problem. Further, using a method of randomization (or Canadization) due to Carr (Rev. Financ. Stud. 11 (1998) 597) we produce a numerical algorithm for solving the aforementioned free boundary problem.

Original language	English
Pages (from-to)	609-638
Number of pages	30
Journal	Stochastic Processes and their Applications
Volume	115
Issue number	4
DOIs	https://doi.org/10.1016/j.spa.2004.11.005
Publication status	Published - 2005

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10.1016/j.spa.2004.11.005

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abstract = "We consider the Russian option introduced by Shepp and Shiryayev (Ann. Appl. Probab. 3 (1993) 631, Theory Probab. Appl. 39 (1995) 103) but with finite expiry and show that its space-time value function characterizes the unique solution to a free boundary problem. Further, using a method of randomization (or Canadization) due to Carr (Rev. Financ. Stud. 11 (1998) 597) we produce a numerical algorithm for solving the aforementioned free boundary problem.",

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AU - Duistermaat, J J

AU - Kyprianou, A E

AU - van Schaik, K

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AB - We consider the Russian option introduced by Shepp and Shiryayev (Ann. Appl. Probab. 3 (1993) 631, Theory Probab. Appl. 39 (1995) 103) but with finite expiry and show that its space-time value function characterizes the unique solution to a free boundary problem. Further, using a method of randomization (or Canadization) due to Carr (Rev. Financ. Stud. 11 (1998) 597) we produce a numerical algorithm for solving the aforementioned free boundary problem.

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DO - 10.1016/j.spa.2004.11.005

M3 - Article

SN - 0304-4149

VL - 115

SP - 609

EP - 638

JO - Stochastic Processes and their Applications

JF - Stochastic Processes and their Applications

IS - 4

ER -

Finite expiry Russian options

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