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On Infinite Horizon Optimal Stopping of General Random Walk

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  • Jukka Lempa

    () (Department of Economics, Quantitative Methods in Management, Turku School of Economics)

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    Abstract

    The objective of this study is to provide an alternative characterization of the optimal value function of a certain Black- Scholes-type optimal stopping problem where the underlying stochastic process is a general random walk, i.e. the process constituted by partial sums of an IID sequence of random variables. Furthermore, the pasting principle of this optimal stopping problem is studied.

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    File URL: http://www.ace-economics.fi/kuvat/ACE3%20Lempa.pdf
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    Bibliographic Info

    Paper provided by Aboa Centre for Economics in its series Discussion Papers with number 3.

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    Length: 18
    Date of creation: Apr 2006
    Date of revision:
    Handle: RePEc:tkk:dpaper:dp3

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    Related research

    Keywords: General random walk; optimal stopping; minimal functions; continuous pasting;

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    1. Svetlana Boyarchenko & Sergei Levendorskii, 2004. "Practical guide to real options in discrete time," Papers cond-mat/0404106, arXiv.org.
    2. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
    3. Ernesto Mordecki, 2002. "Optimal stopping and perpetual options for Lévy processes," Finance and Stochastics, Springer, vol. 6(4), pages 473-493.
    4. Asmussen, Søren & Avram, Florin & Pistorius, Martijn R., 2004. "Russian and American put options under exponential phase-type Lévy models," Stochastic Processes and their Applications, Elsevier, vol. 109(1), pages 79-111, January.
    5. Dayanik, Savas & Karatzas, Ioannis, 2003. "On the optimal stopping problem for one-dimensional diffusions," Stochastic Processes and their Applications, Elsevier, vol. 107(2), pages 173-212, October.
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