Maturity randomization for stochastic control problems
Bouchard, Bruno; Karoui, Nicole El; Touzi, Nizar (2005), Maturity randomization for stochastic control problems, The Annals of Applied Probability, 15, 4, p. 2575-2605. http://dx.doi.org/10.1214/105051605000000593
Type
Article accepté pour publication ou publiéDate
2005Journal name
The Annals of Applied ProbabilityVolume
15Number
4Publisher
Institute of Mathematical Statistics
Pages
2575-2605
Publication identifier
Metadata
Show full item recordAbstract (EN)
We study a maturity randomization technique for approximating optimal control problems. The algorithm is based on a sequence of control problems with random terminal horizon which converges to the original one. This is a generalization of the so-called {\it Canadization} procedure suggested by P. Carr in [2] for the fast computation of American put option prices. In addition to the original application of this technique to optimal stopping problems, we provide an application to another problem in finance, namely the super-replication problem under stochastic volatility, and we show that the approximating value functions can be computed explicitly.Subjects / Keywords
optimal stopping; uncertain volatility models; stochastic controlRelated items
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