A capped optimal stopping problem for the maximum process (Q2439470): Difference between revisions

The authors consider an optimal stopping problem driven by the running maximum of a spectrally negative Lévy process. In particular, they are interested in capped versions of the American lookback option; this is clearly explained in Section 2 of the paper. They provide semi-explicit solutions in terms of the scale functions and show that the optimal stopping boundary is characterized by a first order ODE involving scale functions. The solutions are based on a ``guess and verify'' technique. The ``guess'' part is carefully explained in Section 7, while the verification is contained in Section 9, which includes all the proofs of the paper. The paper is very well written, contains many references and explains the connections to the relevant literature on optimal stopping problems.