Generalization on optimal multiple stopping with application to swing options with random exercise rights number

Noureddine Jilani Ben  Naouara; Faouzi  Trabelsi

doi:10.3934/mcrf.2015.5.807

Article Contents

2015, Volume 5, Issue 4: 807-826. Doi: 10.3934/mcrf.2015.5.807

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Generalization on optimal multiple stopping with application to swing options with random exercise rights number

Noureddine Jilani Ben Naouara^1, and
Faouzi Trabelsi^1,

1.
Département de Mathématiques, Institut Supérieur d'Informatique et de Mathématiques de Monastir, Avenue de la Korniche, B.P. 223, 5000 Monastir

Received: November 30, 2014

Revised: March 31, 2015

Published: November 2015

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Abstract

This paper develops the theory of optimal multiple stopping times expected value problems by stating, proving, and applying a dynamic programming principle for the case in which both the reward process and the number of stopping times are stochastic. This case comes up in practice when valuing swing options, which are somewhat common in commodity trading. We believe our results significantly advance the study of option pricing.

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Mathematics Subject Classification: Primary: 93E20, 49J55, 49K45, 49L20; Secondary: 60G40, 60G50, 60J70.

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