The Russian option: finite horizon (Q2488479)

In the recent papers \textit{L. A. Shepp} and \textit{A. N. Shiryaev} [Teor. Veroyatn. Primen. 39, No. 1, 130--149 (1994; Zbl 0829.60055)] showed that the Russian option problem becomes one-dimensional after the change-of-measure theorem is applied. Thus, the problem becomes equivalent to the American option problem (put or call) with a finite horizon. Using these results, the author proves that the optimal stopping boundary for the Russian option with finite horizon can be characterized as the unique solution of a nonlinear integral equation arising from the early exercise premium representation. The key argument in the proof of the uniqueness relies upon a local time-space formula.