A new look at pricing of the ``Russian Option''
Teoriâ veroâtnostej i ee primeneniâ, Tome 39 (1994) no. 1, pp. 130-149
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The “Russian option” was introduced and calculated with the help of the solution of the optimal stopping problem for a two-dimensional Markov process in [10]. This paper proposes a new derivation of the general results [10]. The key idea is to introduce the dual martingale measure which permits one to reduce the “two-dimensional” optimal stopping problem to a “one-dimensional” one. This approach simplifies the discussion and explain the simplicity of the answer found in [10].
Keywords:
diffusion model of the $(B,S)$-market, bank account, rational option price, rational expiration time, optimal stopping rules, smooth sewing condition, the Stephan problem, diffusion with reflection.
@article{TVP_1994_39_1_a3,
author = {L. A. Shepp and A. N. Shiryaev},
title = {A new look at pricing of the {``Russian} {Option''}},
journal = {Teori\^a vero\^atnostej i ee primeneni\^a},
pages = {130--149},
publisher = {mathdoc},
volume = {39},
number = {1},
year = {1994},
language = {ru},
url = {http://geodesic.mathdoc.fr/item/TVP_1994_39_1_a3/}
}
L. A. Shepp; A. N. Shiryaev. A new look at pricing of the ``Russian Option''. Teoriâ veroâtnostej i ee primeneniâ, Tome 39 (1994) no. 1, pp. 130-149. http://geodesic.mathdoc.fr/item/TVP_1994_39_1_a3/