On the continuous and smooth fit principle for optimal stopping problems in spectrally negative Lévy models

DOI10.1239/AAP/1396360107zbMATH Open1398.60062arXiv1104.4563OpenAlexW2019949062MaRDI QIDQ5415097FDOQ5415097

Authors: Masahiko Egami, Kazutoshi Yamazaki 

Publication date: 9 May 2014

Published in: Advances in Applied Probability (Search for Journal in Brave)

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).

Full work available at URL: https://arxiv.org/abs/1104.4563

Recommendations

• Optimal stopping for Lévy processes with one-sided solutions
• Optimal stopping in Lévy models for nonmonotone discontinuous payoffs
• On Threshold Strategies and the Smooth-Fit Principle for Optimal Stopping Problems
• An approach for solving perpetual optimal stopping problems driven by Lévy processes
• A note on pasting conditions for the American perpetual optimal stopping problem

zbMATH Keywords

scale functionoptimal stoppingspectrally negative Lévy processcontinuous and smooth fit

Mathematics Subject Classification ID

Credit risk (91G40) Stopping times; optimal stopping problems; gambling theory (60G40)

Cites Work

• Introductory lectures on fluctuations of Lévy processes with applications.
• Title not available (Why is that?)
• On the optimal dividend problem for a spectrally negative Lévy process
• On the optimal stopping problem for one-dimensional diffusions.
• Title not available (Why is that?)
• On optimality of the barrier strategy in de Finetti's dividend problem for spectrally negative Lévy processes
• Title not available (Why is that?)
• Exit problems for spectrally negative Lévy processes and applications to (Canadized) Russian options
• The Shepp-Shiryaev stochastic game driven by a spectrally negative Lévy process
• On optimal dividends in the dual model
• Distributional Study of De Finetti's Dividend Problem for a General Lévy Insurance Risk Process
• Exponential decay and ergodicity of completely asymmetric Lévy processes in a finite interval
• Optimal dividends in the dual model under transaction costs
• Applied stochastic control of jump diffusions.
• First passage times of a jump diffusion process
• On the properties of \(r\)-excessive mappings for a class of diffusions
• CREDIT SPREADS, OPTIMAL CAPITAL STRUCTURE, AND IMPLIED VOLATILITY WITH ENDOGENOUS DEFAULT AND JUMP RISK
• Optimal stopping, Appell polynomials, and Wiener-Hopf factorization
• The theory of scale functions for spectrally negative Lévy processes
• Some remarks on first passage of Lévy processes, the American put and pasting principles
• Optimal capital structure and endogenous default
• Irreversible decisions under uncertainty. Optimal stopping made easy
• Optimal stopping and perpetual options for Lévy processes
• A note on scale functions and the time value of ruin for Lévy insurance risk processes
• Smoothness of scale functions for spectrally negative Lévy processes
• Principles of smooth and continuous fit in the determination of endogenous bankruptcy levels
• Optimal Stopping of One-Dimensional Diffusions
• Optimal Stopping of Regular Diffusions under Random Discounting
• Optimal stopping problems for some Markov processes
• Title not available (Why is that?)
• The McKean stochastic game driven by a spectrally negative Lévy process
• Default swap games driven by spectrally negative Lévy processes
• Phase-type Fitting of scale functions for spectrally negative Lévy processes
• Precautionary measures for credit risk management in jump models
• Evaluating Scale Functions of Spectrally Negative Lévy Processes
• American step-up and step-down default swaps under Lévy models
• On the valuation of constant barrier options under spectrally one-sided exponential Lévy models and Carr's approximation for American puts.
• An approach for solving perpetual optimal stopping problems driven by Lévy processes
• Optimal stopping of Hunt and Lévy processes
• A harmonic function technique for the optimal stopping of diffusions
• Optimal stopping of strong Markov processes
• Free boundary problems and perpetual American strangles
• An elementary approach to optimal stopping problems for AR(1) sequences

Cited In (13)

• 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
• On the Novikov-Shiryaev optimal stopping problems in continuous time
• Exit problems for spectrally negative Lévy processes and applications to (Canadized) Russian options
• The structure of the stopping region in a Lévy model
• Optimal stopping in Lévy models for nonmonotone discontinuous payoffs
• Optimality of hybrid continuous and periodic barrier strategies in the dual model
• Phase-type Fitting of scale functions for spectrally negative Lévy processes
• Principles of smooth and continuous fit in the determination of endogenous bankruptcy levels
• Properties of the optimal stopping domain in the Lévy model
• Inventory Control for Spectrally Positive Lévy Demand Processes
• Contraction options and optimal multiple-stopping in spectrally negative Lévy models
• Title not available (Why is that?)

This page was built for publication: On the continuous and smooth fit principle for optimal stopping problems in spectrally negative Lévy models

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q5415097)