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Dual representations for general multiple stopping problems (2012)
| Citations: | 4 - 2 self |
BibTeX
@MISC{Bender12dualrepresentations,
author = {Christian Bender and John Schoenmakers and Jianing Zhang},
title = { Dual representations for general multiple stopping problems },
year = {2012}
}
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Abstract
In this paper, we study the dual representation for generalized multiple stopping problems, hence the pricing problem of general multiple exercise options. We derive a dual representation which allows for cashflows which are subject to volume constraints modeled by integer valued adapted processes and refraction periods modeled by stopping times. As such, this extends the works by Schoenmakers [2012], Bender [2011a], Bender [2011b], Aleksandrov and Hambly [2010], and Meinshausen and Hambly [2004] on multiple exercise options, which either take into consideration a refraction period or volume constraints, but not both simultaneously. We also allow more flexible cashflow structures than the additive structure in the above references. For example some exponential utility problems are covered by our setting. We supplement the theoretical results with an explicit Monte Carlo algorithm for constructing confidence intervals for prices of multiple exercise options and illustrate it with a numerical study on the pricing of a swing option in an electricity market.
Keyphrases
dual representation general multiple volume constraint multiple exercise option refraction period swing option adapted process pricing problem generalized multiple stopping problem electricity market numerical study exponential utility problem explicit monte carlo algorithm general multiple exercise option theoretical result confidence interval additive structure flexible cashflow structure
