Recombining tree approximations for optimal stopping for diffusions

DOI10.1137/17M1118865MaRDI QIDQ4579835zbMATH OpenOpenAlexWikidataFDO

Authors Erhan Bayraktar, Yan Dolinsky, Jia Guo

Publication date 10 August 2018

Published in SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1610.00554

zbMATH Keywords

optimal stoppingAmerican optionsrecombining treesSkorohkhod embedding

Mathematics Subject Classification ID

Numerical methods (including Monte Carlo methods) (91G60) Diffusion processes (60J60) Stopping times; optimal stopping problems; gambling theory (60G40) Optimal stopping in statistics (62L15)

Abstract: In this paper we develop two numerical methods for optimal stopping in the framework of one dimensional diffusion. Both of the methods use the Skorohod embedding in order to construct recombining tree approximations for diffusions with general coefficients. This technique allows us to determine convergence rates and construct nearly optimal stopping times which are optimal at the same rate. Finally, we demonstrate the efficiency of our schemes on several models

Recommendations

• Numerical methods for an optimal multiple stopping problem
• Construction of the value function and optimal rules in optimal stopping of one-dimensional diffusions
• Recombining Binomial Tree Approximations for Diffusions
• Discrete-type approximations for non-Markovian optimal stopping problems. I
• An algorithm to solve optimal stopping problems for one-dimensional diffusions

Cites work

• scientific article; zbMATH DE number 5016447 (Why is no real title available?)
• scientific article; zbMATH DE number 192908 (Why is no real title available?)
• scientific article; zbMATH DE number 1999206 (Why is no real title available?)
• A Diffusion Limit for Generalized Correlated Random Walks
• A functional limit theorem for irregular SDEs
• A note on applications of stochastic ordering to control problems in insurance and finance
• A stochastic approximation for fully nonlinear free boundary parabolic problems
• A survey and some generalizations of Bessel processes
• A theory of the term structure of interest rates
• An Artificial Boundary Method for American Option Pricing under the CEV Model
• Binomial Approximations for Barrier Options of Israeli Style
• Binomial approximations of shortfall risk for game options
• Computing deltas without derivatives
• Dynkin's games and Israeli options
• Game options
• Maximal inequalities for Bessel processes
• Numerical approximation of irregular SDEs via Skorokhod embeddings
• On American VIX options under the generalized 3/2 and 1/2 models
• On the perpetual American put options for level dependent volatility models with jumps
• On the pricing of American options
• Optimal Stopping and the American Put
• Optimal Stopping in Sequential Games With or Without a Constraint of Always Terminating
• Optimal stopping and embedding
• Pricing and Hedging Path-Dependent Options Under the CEV Process
• Short proof of a discrete Gronwall inequality
• Stochastic simulation: Algorithms and analysis
• The Mathematics of Financial Derivatives
• Valuing American options by simulation: a simple least-squares approach
• Valuing American options under the CEV model by Laplace-Carson transforms

Cited in

(6)

• Markov cubature rules for polynomial processes
• Strong diffusion approximation in averaging and value computation in Dynkin's games
• Recombining Binomial Tree Approximations for Diffusions
• Modeling financial leasing by optimal stopping approach
• Optimal stopping and reselling of European options
• Numerical scheme for Dynkin games under model uncertainty

This page was built for publication: Recombining tree approximations for optimal stopping for diffusions

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q4579835)