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Convergence of option rewards for Markov type price processes
D. Silvestrova, H. Jönssonb, F. Stenberga a Department of Mathematics and Physics, Mälardalen University, Box 883, SE-721 23 Västerås, Sweden
b Eurandom, P.O. Box 513 - 5600 MB, Eindhoven, The Netherlands
Abstract:
A general price process represented by a two-component Markov process is considered. Its first component is interpreted as a price process
and the second one as an index process controlling the price component. American type options with pay-off functions, which admit
power type upper bounds, are studied. Both the transition characteristics of the price processes and the pay-off functions are assumed to depend on a perturbation parameter $\delta\geq0$ and to converge
to the corresponding limit characteristics as $\delta\to0.$ Results about
the convergence of reward functionals for American type options for
perturbed processes are presented for models with continuous and
discrete time as well as asymptotically uniform skeleton approximations connecting reward functionals for continuous and discrete time
models.
Keywords:
Reward, convergence, optimal stopping, American option,
skeleton approximation, Markov type price process, stochastic index.
Citation:
D. Silvestrov, H. Jönsson, F. Stenberg, “Convergence of option rewards for Markov type price processes”, Theory Stoch. Process., 13(29):4 (2007), 189–200
Linking options:
https://www.mathnet.ru/eng/thsp245 https://www.mathnet.ru/eng/thsp/v13/i4/p189
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Abstract page: | 92 | Full-text PDF : | 28 | References: | 16 |
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