IDEAS home Printed from
   My bibliography  Save this paper

Minimum Guaranteed Payments and Costly Cancellation Rights: A Stopping Game Perspective


  • Luis H. R. Alvarez E.

    () (Department of Economics, Turku School of Economics)


We consider the valuation and optimal exercise policy of a δ- penalty minimum guaranteed payment option in the case where the value of the underlying dividend-paying asset follows a linear diffusion. We characterize both the value and optimal exercise policy of the considered game option explicitly and demonstrate that increased volatility increases the value of the option and postpones exercise by expanding the continuation region where exercising is suboptimal. An interesting and natural implication of this finding is that the value of the embedded cancellation rights of the issuer increase as volatility increases.

Suggested Citation

  • Luis H. R. Alvarez E., 2006. "Minimum Guaranteed Payments and Costly Cancellation Rights: A Stopping Game Perspective," Discussion Papers 12, Aboa Centre for Economics.
  • Handle: RePEc:tkk:dpaper:dp12

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Stéphane Villeneuve & Erik Ekstrom, 2006. "On the Value of Optimal Stopping Games," Post-Print hal-00173182, HAL.
    2. Luis H. R. Alvarez E., 2006. "A Class of Solvable Stopping Games," Discussion Papers 11, Aboa Centre for Economics.
    3. Yuri Kifer, 2000. "Game options," Finance and Stochastics, Springer, vol. 4(4), pages 443-463.
    4. Andreas Kyprianou, 2004. "Some calculations for Israeli options," Finance and Stochastics, Springer, vol. 8(1), pages 73-86, January.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Yuri Kifer, 2012. "Dynkin Games and Israeli Options," Papers 1209.1791,

    More about this item


    minimum guaranteed payment; δ-penalty options; Dynkin games; linear diffusions;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tkk:dpaper:dp12. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Aleksandra Maslowska). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.