DUAL REPRESENTATIONS FOR GENERAL MULTIPLE STOPPING PROBLEMS
Version of Record online: 18 FEB 2013
© 2013 Wiley Periodicals, Inc.
Volume 25, Issue 2, pages 339–370, April 2015
How to Cite
Bender, C., Schoenmakers, J. and Zhang, J. (2015), DUAL REPRESENTATIONS FOR GENERAL MULTIPLE STOPPING PROBLEMS. Mathematical Finance, 25: 339–370. doi: 10.1111/mafi.12030
- Issue online: 2 MAR 2015
- Version of Record online: 18 FEB 2013
- Manuscript Accepted: OCT 2012
- Manuscript Received: DEC 2011
- general multiple stopping;
- dual representations;
- multiple exercise options;
- volume constraints;
- refraction period
In this paper, we study the dual representation for generalized multiple stopping problems, hence the pricing problem of general multiple exercise options. We derive a dual representation which allows for cash flows which are subject to volume constraints modeled by integer-valued adapted processes and refraction periods modeled by stopping times. As such, this extends the works by Schoenmakers (2012), Bender (2011a), Bender (2011b), Aleksandrov and Hambly (2010), and Meinshausen and Hambly (2004) on multiple exercise options, which either take into consideration a refraction period or volume constraints, but not both simultaneously. We also allow more flexible cash flow structures than the additive structure in the above references. For example, some exponential utility problems are covered by our setting. We supplement the theoretical results with an explicit Monte Carlo algorithm for constructing confidence intervals for prices of multiple exercise options and illustrate it with a numerical study on the pricing of a swing option in an electricity market.