Recombining tree approximations for optimal stopping for diffusions

DOI10.1137/17M1118865zbMATH Open1394.60039arXiv1610.00554OpenAlexW3123560567WikidataQ129868324 ScholiaQ129868324MaRDI QIDQ4579835FDOQ4579835

Authors: Erhan Bayraktar, Yan Dolinsky, Jia Guo 

Publication date: 10 August 2018

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

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

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

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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)

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Cited In (6)

• Markov cubature rules for polynomial processes
• 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
• Strong diffusion approximation in averaging and value computation in Dynkin's games

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