English, Article edition: The Valuation of American Options with Stochastic Stopping Time Constraints Daniel Egloff; Markus Leippold

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Physical Description
  • article
Language
  • English

Edition details

Title
  • The Valuation of American Options with Stochastic Stopping Time Constraints
Author
  • Daniel Egloff
  • Markus Leippold
Physical Description
  • article
Notes
  • This paper concerns the pricing of American options with stochastic stopping time constraints expressed in terms of the states of a Markov process. Following the ideas of Menaldi et al., we transform the constrained into an unconstrained optimal stopping problem. The transformation replaces the original payoff by the value of a generalized barrier option. We also provide a Monte Carlo method to numerically calculate the option value for multidimensional Markov processes. We adapt the Longstaff-Schwartz algorithm to solve the stochastic Cauchy-Dirichlet problem related to the valuation problem of the barrier option along a set of simulated trajectories of the underlying Markov process.
  • American options, optimal stopping under constraints, Feller process, out-performance options, management options, Monte Carlo simulation,
  • RePEc:taf:apmtfi:v:16:y:2009:i:3:p:287-305
Language
  • English
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