Finite expiry Russian options
We consider the Russian option introduced by Shepp and Shiryayev (Ann. Appl. Probab. 3 (1993) 631, Theory Probab. Appl. 39 (1995) 103) but with finite expiry and show that its space-time value function characterizes the unique solution to a free boundary problem. Further, using a method of randomization (or Canadization) due to Carr (Rev. Financ. Stud. 11 (1998) 597) we produce a numerical algorithm for solving the aforementioned free boundary problem.
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Volume (Year): 115 (2005)
Issue (Month): 4 (April)
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References listed on IDEAS
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- Goran Peskir, 2005. "On The American Option Problem," Mathematical Finance, Wiley Blackwell, vol. 15(1), pages 169-181.
- Goran Peskir, 2005. "The Russian option: Finite horizon," Finance and Stochastics, Springer, vol. 9(2), pages 251-267, 04.
- Carr, Peter, 1998. "Randomization and the American Put," Review of Financial Studies, Society for Financial Studies, vol. 11(3), pages 597-626.
- 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.
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