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Optimal Stopping of a Killed Exponentially Growing Process

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  • Armerin, Fredrik

    (Department of Real Estate and Construction Management, Royal Institute of Technology)

Abstract

We consider a finite horizon optimal stopping problem. The value of the underlying process grows exponentially until a Poisson process jumps for the first time, at which the processes jumps to zero and stays there forever. As applications of this model we consider valuing real options and options written on the stock of a start-up company.

Suggested Citation

  • Armerin, Fredrik, 2018. "Optimal Stopping of a Killed Exponentially Growing Process," Working Paper Series 18/2, Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance.
    • Handle: RePEc:hhs:kthrec:2018_002
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    Keywords

    Optimal stopping; Poisson processes; American options;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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