Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/233225 
Year of Publication: 
2006
Series/Report no.: 
Discussion paper No. 9
Publisher: 
Aboa Centre for Economics (ACE), Turku
Abstract: 
We consider the optimal stopping of a class of spectrally negative jump diffusions. We state a set of conditions under which the value is shown to have a representation in terms of an ordinary nonlinear programming problem. We establish a connection between the considered problem and a stopping problem of an associated continuous diffusion process and demonstrate how this connection may be applied for characterizing the stopping policy and its value. We also establish a set of typically satisfied conditions under which increased volatility as well as higher jump-intensity decelerates rational exercise by increasing the value and expanding the continuation region.
Subjects: 
jump diffusions
optimal stopping
nonlinear programming
perpetual American options
JEL: 
C61
G11
G12
Document Type: 
Working Paper

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