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The Valuation of Callable Financial Commodities with Two Stopping Boundaries

In: Recent Advances In Financial Engineering

Author

Listed:
  • Katsushige Sawaki

    (Nanzan Business School, Nanzan University, Japan)

  • Atsuo Suzuki

    (Faculty of Urban Science, Meijo University, Japan)

  • Kyoko Yagi

    (Faculty of Economics, The University of Tokyo, Japan)

Abstract

In this paper we consider a model of valuing callable financial commodities which enable both an issuer and an investor to exercise their rights, respectively. We show that such a model can be formulated as a coupled stochastic game for the optimal stopping problem with two reflecting barriers. It is also shown that there exists a pair of optimal stopping rules and the value of the stochastic game. Most previous work concerning American options, Israeli options, convertible bonds and callable derivatives has required the specific payoff function when either of the issuer or the investor has exercise their option. However, we deal with a rather general payoff function of the underlying asset price and the time. We also explore some analytical properties of optimal stopping rules of the issuer and the investor.

Suggested Citation

  • Katsushige Sawaki & Atsuo Suzuki & Kyoko Yagi, 2009. "The Valuation of Callable Financial Commodities with Two Stopping Boundaries," World Scientific Book Chapters, in: Masaaki Kijima & Masahiko Egami & Kei-ichi Tanaka & Yukio Muromachi (ed.), Recent Advances In Financial Engineering, chapter 10, pages 189-200, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814273473_0010
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    Citations

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    Cited by:

    1. Yuri Kifer, 2012. "Dynkin Games and Israeli Options," Papers 1209.1791, arXiv.org.

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