Double continuation regions for American and Swing options with negative discount rate in Levy models

Marzia De Donno, Zbigniew Palmowski, Joanna Tumilewicz

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2 Citazioni (Scopus)

Abstract

In this paper we study perpetual American call and put options in an exponential Lévy model. We consider a negative effective discount rate which arises in a number of financial applications including stock loans and real options, where the strike price can potentially grow at a higher rate than the original discount factor. We show that in this case a double continuation region arises and we identify the two critical prices. We also generalize this result to multiple stopping problems of Swing type, that is, when successive exercise opportunities are separated by i.i.d. random refraction times. We conduct an extensive numerical analysis for the Black-Scholes model and the jump-diffusion model with exponentially distributed jumps.
Lingua originaleEnglish
pagine (da-a)196-227
Numero di pagine32
RivistaMathematical Finance
Volume30
DOI
Stato di pubblicazionePubblicato - 2019

Keywords

  • American option
  • Levy process
  • negative rate
  • optimal stopping

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