On the continuous and smooth fit principle for optimal stopping problems in spectrally negative Lévy models
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Publication:5415097
Abstract: We consider a class of infinite-time horizon optimal stopping problems for spectrally negative Levy processes. Focusing on strategies of threshold type, we write explicit expressions for the corresponding expected payoff via the scale function, and further pursue optimal candidate threshold levels. We obtain and show the equivalence of the continuous/smooth fit condition and the first-order condition for maximization over threshold levels. As examples of its applications, we give a short proof of the McKean optimal stopping problem (perpetual American put option) and solve an extension to Egami and Yamazaki (2013).
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Cited in
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- Optimality of Two-Parameter Strategies in Stochastic Control
- Beating the omega clock: an optimal stopping problem with random time-horizon under spectrally negative Lévy models
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- Contraction options and optimal multiple-stopping in spectrally negative Lévy models
- Properties of the optimal stopping domain in the Lévy model
- Inventory Control for Spectrally Positive Lévy Demand Processes
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