Optimal Multiple Stopping with Negative Discount Rate and Random Refraction Times under Levy Models

Tim Leung, Kazutoshi Yamazaki and Hongzhong Zhang

Papers from arXiv.org

Abstract: This paper studies a class of optimal multiple stopping problems driven by L\'evy processes. Our model allows for a negative effective discount rate, which arises in a number of financial applications, including stock loans and real options, where the strike price can potentially grow at a higher rate than the original discount factor. Moreover, successive exercise opportunities are separated by i.i.d. random refraction times. Under a wide class of two-sided L\'evy models with a general random refraction time, we rigorously show that the optimal strategy to exercise successive call options is uniquely characterized by a sequence of up-crossing times. The corresponding optimal thresholds are determined explicitly in the single stopping case and recursively in the multiple stopping case.

Date: 2015-05
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1505.07313

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