General undiscounted nonlinear optimal multiple stopping of linear diffusions with boundary classification

DOI10.1504/IJMOR.2015.072275MaRDI QIDQ1639508zbMATH OpenOpenAlexFDO

Authors Noureddine Jilani Ben Naouara, Faouzi Trabelsi

Publication date 13 June 2018

Published in International Journal of Mathematics in Operational Research (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1504/ijmor.2015.072275

zbMATH Keywords

boundary classification: regular, exit, natural and entrance boundariescall on swing optionenergy marketexcessive functionsnonlinear optimal multiple stoppingregular linear diffusion processswing options

Mathematics Subject Classification ID

Stopping times; optimal stopping problems; gambling theory (60G40) Applications of stochastic analysis (to PDEs, etc.) (60H30) Diffusion processes (60J60) Derivative securities (option pricing, hedging, etc.) (91G20)

Review text

Summary: This paper presents an extension of recent works by \textit{F. Trabelsi} and \textit{M. B. Zoghlami} [Int. J. Oper. Res. 14, No. 4, 387--416 (2012; Zbl 1362.91041)] and \textit{F. Trabelsi} [Int. J. Math. Oper. Res. 5, No. 2, 225--254 (2013; Zbl 1390.60157)], on the resolution of undiscounted optimal multiple stopping times problem for regular linear diffusion, which may be viewed as a generalisation of Swing options in the energy market. In the above papers, the underlying is thought as either an asset price or a spot interest rate, but is restricted to a closed interval whose upper bound is absorbing. A fixed absorbing upper boundary does not sound mathematically interesting. In the presence of state regulations or central bank policies, for example, the asset price or the spot interest rate may not be allowed to exceed a cap value, but then the cap value should act not as an absorbing boundary, but rather as a natural, entrance boundary. We therefore extend the above works to include all possible boundary classifications of the endpoints of the state space. As application, we propose a new class of compound options, referred as Call on Swing options, in a Bessel market model.

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(4)

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• On the optimal exercise boundaries of swing put options

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