Minimum Guaranteed Payments and Costly Cancellation Rights: A Stopping Game Perspective

Arbeitspapier

We consider the valuation and optimal exercise policy of a δ- penalty minimum guaranteed payment option in the case where the value of the underlying dividend-paying asset follows a linear diffusion. We characterize both the value and optimal exercise policy of the considered game option explicitly and demonstrate that increased volatility increases the value of the option and postpones exercise by expanding the continuation region where exercising is suboptimal. An interesting and natural implication of this finding is that the value of the embedded cancellation rights of the issuer increase as volatility increases.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion paper ; No. 12

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Stochastic and Dynamic Games; Evolutionary Games; Repeated Games ; Optimization Techniques; Programming Models; Dynamic Analysis
• Subject: minimum guaranteed payment ; δ-penalty options ; Dynkin games ; linear diffusions

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Alvarez, Luis H. R.
• Event: Veröffentlichung
• (who): Aboa Centre for Economics (ACE)
• (where): Turku
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/233228
• Last update: 10.03.2025, 11:42 AM CET