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.

Suggested Citation

De Angelis, Tiziano and Kitapbayev, Yerkin, On the Optimal Exercise Boundaries of Swing Put Options (March 1, 2017). Forthcoming in Mathematics of Operational Research, Available at SSRN: https://ssrn.com/abstract=3002502

Tiziano De Angelis

University of Manchester ( email )

Oxford Rd. M13 9PL
Manchester
United Kingdom

Yerkin Kitapbayev (Contact Author)

Khalifa University ( email )

Abu Dhabi
United Arab Emirates

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