Work

Corrected random walk approximations to free boundary problems in optimal stopping

Year: 2007

Type: article

Abstract: Corrected random walk approximations to continuous-time optimal stopping boundaries for Brownian motion, first introduced by Chernoff and Petkau, have provided powerful computational tools in option pricing and sequential analysis. This paper develops the theory of these second-order approximations and describes some new applications.

Source: Advances in Applied Probability

DOI: 10.1017/s0001867800002032

Authors: Tze Leung Lai, Yi-Ching Yao, Farid Aitsahlia

Institutions: Stanford University, Academia Sinica, University of Florida

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

Funders: National Science Foundation, National Science Council

Award: Detection, Estimation and Optimization Problems in Stochastic Systems, and Applications to Genetics, Engineering and Economics