Characterization of Optimal Stopping Regions of American Asian and Lookback Options

20 Pages Posted: 21 Jun 2006

See all articles by Min Dai

Min Dai

National University of Singapore (NUS) - Department of Mathematics

Yue Kuen Kwok

Hong Kong University of Science & Technology - Department of Mathematics

Abstract

A general framework is developed to analyze the optimal stopping (exercise) regions of American path-dependent options with either the Asian feature or lookback feature. We examine the monotonicity 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.

Suggested Citation

Dai, Min and Kwok, Yue Kuen, Characterization of Optimal Stopping Regions of American Asian and Lookback Options. Mathematical Finance, Vol. 16, No. 1, pp. 63-82, January 2006. Available at SSRN: https://ssrn.com/abstract=910641 or http://dx.doi.org/10.1111/j.1467-9965.2006.00261.x

Min Dai

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

Singapore

Yue Kuen Kwok (Contact Author)

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

Clearwater Bay
Kowloon, 999999
Hong Kong

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