Finite expiry Russian options

J.J. Duistermaat, A.E. Kyprianou and K. van Schaik

Stochastic Processes and their Applications, 2005, vol. 115, issue 4, 609-638

Abstract: 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.

Keywords: American; options; Russian; options; Optimal; stopping; problem; Stefan; boundary; problem; Local; time-space (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (4)

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