Pricing perpetual American-type strangle option for merton's jump diffusion process
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A stock price Xt evolves according to jump diffusion process with certain parameters. An asset manager who holds a strangle option on that stock, wants to maximize his/her expected payoff over the infinite time horizon. We derive an optimal exercise rule for asset manager when the underlying stock is dividend paying and non-dividend paying. We conclude that optimal stopping strategy changes according to stock’s dividend rate. We also illustrate the solution on numerical examples.
Markov jump diffusion processes
QA274.75 .O53 2014
Optimal stopping (Mathematical statistics)