WIAS Preprint No. 1665, (2011)

Dual representations for general multiple stopping problems



Authors

  • Bender, Christian
  • Schoenmakers, John G. M.
    ORCID: 0000-0002-4389-8266
  • Zhang, Jianing

2010 Mathematics Subject Classification

  • 60G40 65C05 91B28

Keywords

  • General multiple stopping, Dual representations, Multiple exercise options, Volume constraints, Refraction period

Abstract

In this paper, we study the dual representation for generalized multiple stopping problems, hence the pricing problem of general multiple exercise options. We derive a dual representation which allows for cashflows which are subject to volume constraints modeled by integer valued adapted processes and refraction periods modeled by stopping times. As such, this extends the works by Schoenmakers [2010], Bender [2011a], Bender [2011b], Aleksandrov and Hambly [2010] and Meinshausen and Hambly [2004] on multiple exercise options, which either take into consideration a refraction period or volume constraints, but not both simultaneously. We also allow more flexible cashflow structures than the additive structure in the above references. For example some exponential utility problems are covered by our setting. We supplement the theoretical results with an explicit Monte Carlo algorithm for constructing confidence intervals for the price of multiple exercise options and exemplify it by a numerical study on the pricing of a swing option in an electricity market.

Appeared in

  • Math. Finance, 25 (2015) pp. 339--370.

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