Work

A Novel Idea to Solve Optimal Stopping Problem With Finite Time Horizon and Its Application in American Put

Year: 2025

Type: article

Abstract: ABSTRACT This paper provides a novel idea to solve optimal stopping problem (OSP) with finite time horizon and hence price finite‐expiration American put. Unlike the traditional method in finding the problem to the so‐called free‐boundary problem, which causes complex calculations or numerical analysis, our proposed method is straightforward in probabilistic scheme, hence can be quickly applied to derivative pricing theory. In application, we practice the valuation of finite time horizon American put option and provide the numerical results.

Source: Mathematical Methods in the Applied Sciences

DOI: 10.1002/mma.11050

Authors: Haoyan Zhang, Lingyun Gao

Institution: Civil Aviation University of China

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

Funder: Fundamental Research Funds for the Central Universities

Award: G6176321145