An explicit solution to an optimal stopping problem with regime switching (Q2748440)
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scientific article; zbMATH DE number 1659443
| Language | Label | Description | Also known as |
|---|---|---|---|
| English | An explicit solution to an optimal stopping problem with regime switching |
scientific article; zbMATH DE number 1659443 |
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An explicit solution to an optimal stopping problem with regime switching (English)
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22 July 2002
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optimal stopping
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Russian option
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hidden Markov process
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martingale
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smooth fit
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regime switching
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The author considers the problem of pricing Russian options for stock price fluctuations governed by a geometric Brownian motion with known drift and volatility parameters which depend on a two-state Markov chain. The corresponding optimal stopping problem is solved in closed form by an ingenious use of the smooth fit principle.
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