Continuously controlled options: derivatives with added flexibility

DOI10.1142/S0219024913500039MaRDI QIDQ4916240zbMATH OpenFDO

Authors Nikolai Dokuchaev

Publication date 22 April 2013

Published in International Journal of Theoretical and Applied Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1012.1412

zbMATH Keywords

continuous-time marketcontrolled optionsexotic optionsHJB equationknapsack problemstochastic control

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Financial applications of other theories (91G80) Optimal stochastic control (93E20)

Abstract: The paper introduces a limit version of multiple stopping options such that the holder selects dynamically a weight function that control the distribution of the payments (benefits) over time. In applications for commodities and energy trading, a control process can represent the quantity that can be purchased by a fixed price at current time. In another example, the control represents the weight of the integral in a modification of the Asian option. The pricing for these options requires to solve a stochastic control problem. Some existence results and pricing rules are obtained via modifications of parabolic Bellman equations.

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Cites work

• An iterative method for multiple stopping: convergence and stability
• Dual pricing of multi-exercise options under volume constraints
• Functional Analysis
• Game options
• MONTE CARLO METHODS FOR THE VALUATION OF MULTIPLE‐EXERCISE OPTIONS
• MULTIPLE RESCINDABLE OPTIONS AND THEIR PRICING
• OPTIMAL MULTIPLE STOPPING AND VALUATION OF SWING OPTIONS
• Optimal multiple stopping models of reload options and shout options
• Optimal Strategies of Passport Options
• PASSPORT OPTIONS
• Some calculations for Israeli options
• The Russian option: finite horizon

Cited in

(4)

• Variable purchase options
• Generalisation of Hajek's stochastic comparison results to stochastic sums
• A FIRST‐ORDER BSPDE FOR SWING OPTION PRICING: CLASSICAL SOLUTIONS
• A first-order BSPDE for swing option pricing

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