00-9   Berichtsreihe des Mathematischen Seminars der Universität Kiel

Volkert Paulsen:

The h-Transformation and its Application to Mathematical Finance

In this paper the $h$-transformation is applied to optimal stopping problems for one-dimensional diffusions. We will establish sufficient conditions which lead to continuation regions in interval form for discounted reward functions $e^{-\l t}g(x)$. We will see that the approach can be applied to various stopping problems related to mathematical finance. In particular we can easily check if an American perpetual option yields an early exercise region determined by one or two boundaries.

Mathematics Subject Classification (1991): 60G40, 62L15, 60J70, 60J60

Keywords: American option, optimal stopping, portfolio optimization, diffusion, change of measure

Mail an Jens Burmeister
[Thu Feb 19 18:56:35 2009]
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