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The Swing Option On The Stock Market

Author

Listed:
  • MARTIN DAHLGREN

    (Lund University, Centre for Mathematical Sciences, Box 118, SE-221 00 LUND, Sweden)

  • RALF KORN

    (University of Kaiserslautern & Fraunhofer ITWM, 67653 Kaiserslautern, Germany)

Abstract

The valuation of a Swing option for stocks under the additional constraint of a minimum time distance between two different exercise times is considered. We give an explicit characterization of its pricing function as the value function of a multiple optimal stopping problem. The solution of this problem is related to a system of variational inequalities. We prove existence of a solution to this system and discuss the numerical implementation of a valuation algorithm.

Suggested Citation

  • Martin Dahlgren & Ralf Korn, 2005. "The Swing Option On The Stock Market," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 8(01), pages 123-139.
    • Handle: RePEc:wsi:ijtafx:v:08:y:2005:i:01:n:s0219024905002895
    DOI: 10.1142/S0219024905002895
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    Citations

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    Cited by:

    1. R. Mark Reesor & T. James Marshall, 2020. "Forest of Stochastic Trees: A Method for Valuing Multiple Exercise Options," JRFM, MDPI, vol. 13(5), pages 1-31, May.
    2. Nicolas Essis-Breton & Patrice Gaillardetz, 2020. "Fast Lower and Upper Estimates for the Price of Constrained Multiple Exercise American Options by Single Pass Lookahead Search and Nearest-Neighbor Martingale," Papers 2002.11258, arXiv.org.
    3. Seydel, Roland C., 2009. "Existence and uniqueness of viscosity solutions for QVI associated with impulse control of jump-diffusions," Stochastic Processes and their Applications, Elsevier, vol. 119(10), pages 3719-3748, October.
    4. M. Dahlgren, 2005. "A Continuous Time Model to Price Commodity-Based Swing Options," Review of Derivatives Research, Springer, vol. 8(1), pages 27-47, June.

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