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Mathematical Control and Related Fields (MCRF)
 

Generalization on optimal multiple stopping with application to swing options with random exercise rights number

Pages: 807 - 826, Volume 5, Issue 4, December 2015      doi:10.3934/mcrf.2015.5.807

 
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Noureddine Jilani Ben Naouara - Département de Mathématiques, Institut Supérieur d'Informatique et de Mathématiques de Monastir, Avenue de la Korniche, B.P. 223, 5000 Monastir, Tunisia (email)
Faouzi Trabelsi - Département de Mathématiques, Institut Supérieur d'Informatique et de Mathématiques de Monastir, Avenue de la Korniche, B.P. 223, 5000 Monastir, Tunisia (email)

Abstract: This paper develops the theory of optimal multiple stopping times expected value problems by stating, proving, and applying a dynamic programming principle for the case in which both the reward process and the number of stopping times are stochastic. This case comes up in practice when valuing swing options, which are somewhat common in commodity trading. We believe our results significantly advance the study of option pricing.

Keywords:  Optimal stopping, optimal multiple stopping, stopping times, hitting times, strong optimal stopping times strategy, diffusion process, Swing option, dynamic programming.
Mathematics Subject Classification:  Primary: 93E20, 49J55, 49K45, 49L20; Secondary: 60G40, 60G50, 60J70.

Received: December 2014;      Revised: April 2015;      Available Online: October 2015.

 References