Functional convergence of Snell envelopes: Applications to American options approximations
AbstractThe main result of the paper is a stability theorem for the Snell envelope under convergence in distribution of the underlying processes: more precisely, we prove that if a sequence $(X^n)$ of stochastic processes converges in distribution for the Skorokhod topology to a process $X$ and satisfies some additional hypotheses, the sequence of Snell envelopes converges in distribution for the Meyer-Zheng topology to the Snell envelope of $X$ (a brief account of this rather neglected topology is given in the appendix). When the Snell envelope of the limit process is continuous, the convergence is in fact in the Skorokhod sense. This result is illustrated by several examples of approximations of the American options prices; we give moreover a kind of robustness of the optimal hedging portfolio for the American put in the Black and Scholes model.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Springer in its journal Finance and Stochastics.
Volume (Year): 2 (1998)
Issue (Month): 3 ()
Note: received: January 1996; final version received: July 1997
Contact details of provider:
Web page: http://www.springerlink.com/content/101164/
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Dietmar P.J. Leisen, 1997. "The Random-Time Binomial Model," Finance, EconWPA 9711005, EconWPA, revised 29 Nov 1998.
- Yan Dolinsky, 2009. "Applications of weak convergence for hedging of game options," Papers 0908.3661, arXiv.org, revised Nov 2010.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F Baum).
If references are entirely missing, you can add them using this form.