6 research outputs found
Variational inequalities in Hilbert spaces with measures and optimal stopping problems
We study the existence theory for parabolic variational inequalities in
weighted spaces with respect to excessive measures associated with a
transition semigroup. We characterize the value function of optimal stopping
problems for finite and infinite dimensional diffusions as a generalized
solution of such a variational inequality. The weighted setting allows us
to cover some singular cases, such as optimal stopping for stochastic equations
with degenerate diffusion coefficient. As an application of the theory, we
consider the pricing of American-style contingent claims. Among others, we
treat the cases of assets with stochastic volatility and with path-dependent
payoffs.Comment: To appear in Applied Mathematics and Optimizatio
A Simulation Approach to Optimal Stopping Under Partial Information
We study the numerical solution of nonlinear partially observed optimal
stopping problems. The system state is taken to be a multi-dimensional
diffusion and drives the drift of the observation process, which is another
multi-dimensional diffusion with correlated noise. Such models where the
controller is not fully aware of her environment are of interest in applied
probability and financial mathematics. We propose a new approximate numerical
algorithm based on the particle filtering and regression Monte Carlo methods.
The algorithm maintains a continuous state-space and yields an integrated
approach to the filtering and control sub-problems. Our approach is entirely
simulation-based and therefore allows for a robust implementation with respect
to model specification. We carry out the error analysis of our scheme and
illustrate with several computational examples. An extension to discretely
observed stochastic volatility models is also considered
Optimal stopping in Hilbert spaces and pricing of American options
We consider an optimal stopping problem for a Hilbert-space valued diffusion. We prove that the value function of the problem is the unique viscosity solution of an obstacle problem for the associated parabolic partial differential equation in the Hilbert space. The results are applied to investigate the pricing of American interest rate options in the lognormal Heath-Jarrow-Morton model of yield curve dynamics. Key words. Optimal stopping, obstacle problems, viscosity solutions, option pricing. AMS Subject Classification. 35R20, 49L25, 90A09, 49J15, 60H10. 1 Introduction Optimal stopping problems in finite dimensional domains and obstacle partial differential equations associated with them have been studied extensively in the past. Classical results Andrzej ' Swi¸ech was partially supported by NSF grant DMS-9706760 on the subject can be found in [2],[1]. In recent years the field of stochastic optimal control has developed significantly due to the introduction of the notion of ..