Contraction options and optimal multiple-stopping in spectrally negative Lévy models

DOI10.1007/S00245-014-9274-0MaRDI QIDQ496121zbMATH OpenOpenAlexFDO

Authors Kazutoshi Yamazaki

Publication date 17 September 2015

Published in Applied Mathematics and Optimization (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1209.1790

zbMATH Keywords

contraction optionsoptimal multiple-stoppingspectrally negative Lévy processes

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Stopping times; optimal stopping problems; gambling theory (60G40) Financial applications of other theories (91G80)

Abstract: This paper studies the optimal multiple-stopping problem arising in the context of the timing option to withdraw from a project in stages. The profits are driven by a general spectrally negative Levy process. This allows the model to incorporate sudden declines of the project values, generalizing greatly the classical geometric Brownian motion model. We solve the one-stage case as well as the extension to the multiple-stage case. The optimal stopping times are of threshold-type and the value function admits an expression in terms of the scale function. A series of numerical experiments are conducted to verify the optimality and to evaluate the efficiency of the algorithm.

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Cited in

(6)

• Optimal multiple stopping with negative discount rate and random refraction times under Lévy models
• Double continuation regions for American and Swing options with negative discount rate in Lévy models
• Optimality of hybrid continuous and periodic barrier strategies in the dual model
• On the optimality of threshold type strategies in single and recursive optimal stopping under Lévy models
• Inventory Control for Spectrally Positive Lévy Demand Processes
• An analytic recursive method for optimal multiple stopping: Canadization and phase-type fitting

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