Characterization of Optimal Stopping Regions of American Path Dependent Options

33 Pages Posted: 3 Jan 2005

See all articles by Yue Kuen Kwok

Yue Kuen Kwok

Hong Kong University of Science & Technology - Department of Mathematics

Min Dai

National University of Singapore (NUS) - Department of Mathematics

Abstract

A general framework is developed to analyze the optimal stopping (exercise) regions of American path dependent options with either Asian feature or lookback feature. We examine the monotone properties of the option values and stopping regions with respect to the interest rate, dividend yield and time. From the ordering properties of the values of American lookback options and American Asian options, we deduce the corresponding nesting relations between the exercise regions of these American options. We illustrate how some properties of the exercise regions of the American Asian options can be inferred from those of the American lookback options.

Keywords: American options, optimal stopping, Asian feature, lookback feature, monotone properties

JEL Classification: G13

Suggested Citation

Kwok, Yue Kuen and Dai, Min, Characterization of Optimal Stopping Regions of American Path Dependent Options. Available at SSRN: https://ssrn.com/abstract=603744 or http://dx.doi.org/10.2139/ssrn.603744

Yue Kuen Kwok (Contact Author)

Hong Kong University of Science & Technology - Department of Mathematics ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Min Dai

National University of Singapore (NUS) - Department of Mathematics ( email )

Singapore

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