Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25141
Authors: 
Gapeev, Pavel V.
Year of Publication: 
2006
Series/Report no.: 
SFB 649 discussion paper 2006,058
Abstract: 
We present a closed form solution to the perpetual American double barrier call option problem in a model driven by Brownian motion and a compound Poisson process with exponential jumps. The method of proof is based on reducing the inital irregular optimal stopping problem to an integro-differential free-boundary problem and solving the latter by using continuous and smooth fit. The obtained solution of the nontrivial free-boundary problem gives the possibility to observe some special analytic properties of the value function at the optimal stopping boundaries.
Subjects: 
American double barrier options
optimal stopping problem
jump-diffusion model
integro-differential free-boundary problem
continuous and smooth fit
It-Tanaka-Meyer formula
JEL: 
G13
Document Type: 
Working Paper

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