Arbeitspapier
Discounted optimal stopping for maxima in diffusion models with finite horizon
We present a solution to some discounted optimal stopping problem for the maximum of a geometric Brownian motion on a finite time interval. The method of proof is based on reducing the initial optimal stopping problem with the continuation region determined by an increasing continuous boundary surface to a parabolic free-boundary problem. Using the change-of-variable formula with local time on surface we show that the optimal boundary can be characterized as a unique solution of a nonlinear integral equation. The result can be interpreted as pricing American fixed-strike lookback option in a diffusion model with finite time horizon.
- Language
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Englisch
- Bibliographic citation
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Series: SFB 649 Discussion Paper ; No. 2006,057
- Classification
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Wirtschaft
- Event
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Geistige Schöpfung
- (who)
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Gapeev, Pavel V.
- Event
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Veröffentlichung
- (who)
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Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
- (where)
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Berlin
- (when)
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2006
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Gapeev, Pavel V.
- Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
Time of origin
- 2006
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