On the Optimal Exercise Boundaries of Swing Put Options
Forthcoming in Mathematics of Operational Research
30 Pages Posted: 19 Jul 2017
Date Written: March 1, 2017
Abstract
We use probabilistic methods to characterise time dependent optimal stopping boundaries in a problem of multiple optimal stopping on a finite time horizon. Motivated by financial applications we consider a payoff of immediate stopping of "put" type and the underlying dynamics follows a geometric Brownian motion. The optimal stopping region relative to each optimal stopping time is described in terms of two boundaries which are con- tinuous, monotonic functions of time and uniquely solve a system of coupled integral equations of Volterra-type. Finally we provide a formula for the value function of the problem.
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