A capped optimal stopping problem for the maximum process

DOI10.1007/S10440-013-9833-4MaRDI QIDQ2439470zbMATH OpenOpenAlexFDO

Authors A. E. Kyprianou, Curdin Ott

Publication date 14 March 2014

Published in Acta Applicandae Mathematicae (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1204.3119, http://opus.bath.ac.uk/38651/1/ACAP_upload.pdf

zbMATH Keywords

optimal stoppingscale functionsLévy processes

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Stopping times; optimal stopping problems; gambling theory (60G40) Financial applications of other theories (91G80)

Abstract: This paper concerns an optimal stopping problem driven by the running maximum of a spectrally negative Levy process X. More precisely, we are interested in capped versions of the American lookback optimal stopping problem, which has its origins in mathematical finance, and provide semi-explicit solutions in terms of scale functions. The optimal stopping boundary is characterised by an ordinary first-order differential equation involving scale functions and, in particular, changes according to the path variation of X. Furthermore, we will link these capped problems to Peskir's maximality principle.

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Cited in

(15)

• Perpetual American options in diffusion-type models with running maxima and drawdowns
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• Inventory Control for Spectrally Positive Lévy Demand Processes
• Optimal stopping problems for maxima and minima in models with asymmetric information
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• Optimal stopping problems for the maximum process with upper and lower caps

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