Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/81125
Authors: 
Vorbrink, Jörg
Year of Publication: 
2011
Series/Report no.: 
Working Papers, Institute of Mathematical Economics 448
Abstract: 
We investigate American options in a multiple prior setting of continuous time and determine optimal exercise strategies form the perspective of an ambiguity averse buyer. The multiple prior setting relaxes the presumption of a known distribution of the stock price process and captures the idea of incomplete information of the market data leading to model uncertainty. Using the theory of (reflected) backward stochastic differential equations we are able to solve the optimal stopping problem under multiple priors and identify the particular worst-case scenario in terms of the worst-case prior. By means of the analysis of exotic American options we highlight the main difference to classical single prior models. This is characterized by a resulting endogenous dynamic structure of the worst-case scenario generated by model adjustments of the agent due to particular occurring events that change the agent's beliefs.
Subjects: 
optimal stopping for exotic American options
uncertainty aversion
multiple priors
robustness
(reflected) BSDEs
JEL: 
G13
D81
C61
Document Type: 
Working Paper

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