Contraction options and optimal multiple-stopping in spectrally negative Levy models

Kazutoshi Yamazaki

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arXiv · 1209.1790

Contraction options and optimal multiple-stopping in spectrally negative Levy models

Kazutoshi Yamazaki

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Abstract

This paper studies the optimal multiple-stopping problem arising in the context of the timing option to withdraw from a project in stages. The profits are driven by a general spectrally negative Levy process. This allows the model to incorporate sudden declines of the project values, generalizing greatly the classical geometric Brownian motion model. We solve the one-stage case as well as the extension to the multiple-stage case. The optimal stopping times are of threshold-type and the value function admits an expression in terms of the scale function. A series of numerical experiments are conducted to verify the optimality and to evaluate the efficiency of the algorithm.

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BibTeX RIS

Kazutoshi Yamazaki. 2014-09-20. Contraction options and optimal multiple-stopping in spectrally negative Levy models. https://arxiv.org/abs/1209.1790

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