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American Options And Incomplete Information
Uppsala University, Disciplinary Domain of Science and Technology, Mathematics and Computer Science, Department of Mathematics.
2019 (English)In: International Journal of Theoretical and Applied Finance, ISSN 0219-0249, Vol. 22, no 6, article id 1950035Article in journal (Refereed) Published
Abstract [en]

We study the optimal exercise of American options under incomplete information about the drift of the underlying process, and we show that quite unexpected phenomena may occur. In fact, certain parameter values give rise to stopping regions very different from the standard case of complete information. For example, we show that for the American put (call) option it is sometimes optimal to exercise the option when the underlying process reaches an upper (lower) boundary.

Place, publisher, year, edition, pages
2019. Vol. 22, no 6, article id 1950035
Keywords [en]
American options, incomplete information, optimal stopping, filtering theory
National Category
Probability Theory and Statistics
Identifiers
URN: urn:nbn:se:uu:diva-397947DOI: 10.1142/S0219024919500353ISI: 000496559900007OAI: oai:DiVA.org:uu-397947DiVA, id: diva2:1382308
Available from: 2020-01-02 Created: 2020-01-02 Last updated: 2020-01-02Bibliographically approved

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Ekström, Erik

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