Advances in Decision Sciences
Volume 2009 (2009), Article ID 593986, 13 pages
doi:10.1155/2009/593986
Callable Russian options and their optimal boundaries
Atsuo Suzuki1
and Katsushige Sawaki2
1Faculty of Urban Science, Meijo University, 4-3-3 Nijigaoka, Kani, Gifu 509-0261, Japan
2Nanzan Business School, Nanzan University, 18 Yamazato-cho, Showa-ku, Nagoya 466-8673, Japan
Abstract
We deal with the pricing of callable Russian options. A callable Russian option is a contract in which both of the seller and the buyer have the rights to cancel and to exercise at any time, respectively. The pricing of such an option can be formulated as an optimal stopping problem between the seller and the buyer, and is analyzed as Dynkin game. We derive the value function of callable Russian options and their optimal boundaries.