Irreversible Decisions under Uncertainty: Optimal Stopping Made Easy

✍ Scribed by Prof. Dr. Svetlana Boyarchenko, Prof. Dr. Sergei Levendorskii (auth.)

• Publisher: Springer-Verlag Berlin Heidelberg
• Year: 2007
• Tongue: English
• Leaves: 291
• Series: Studies in Economic Theory 27
• Edition: 1
• Category: Library

✦ Synopsis

In real life, as well as in economic models, individuals often make decisions in an uncertain environment. In many cases, a problem which an optimizing agent faces can be formulated or reformulated as a problem of optimal timing of a certain irreversible or partially reversible action or optimal stopping problem. In this book, the authors present an alternative approach to optimal stopping problems. The basic ideas and techniques of the approach can be explained much simpler than the standard methods in the literature on optimal stopping problems. The monograph will teach the reader to apply the technique to many problems in economics and finance, including new ones. From the technical point of view, the method can be characterized as option pricing via the Wiener-Hopf factorization.

✦ Table of Contents

Front Matter....Pages I-XVI
Front Matter....Pages 1-1
Introduction....Pages 3-16
Real options and American options....Pages 17-34
Risk-neutral pricing. Finite time horizon case....Pages 35-47
Front Matter....Pages 49-49
Random walks on ℤ....Pages 51-58
Options in the binomial and trinomial models....Pages 59-78
General random walks on ℤ: Option pricing....Pages 79-104
Front Matter....Pages 105-105
Random walks on ℝ....Pages 107-116
Basic options in the model (7.5)....Pages 117-132
Optimal stopping for general random walks....Pages 133-166
Front Matter....Pages 167-167
Brownian motion case....Pages 169-192
General Lévy processes....Pages 193-224
Embedded options....Pages 225-249
Front Matter....Pages 251-251
American options with finite time horizon....Pages 253-261
Perpetual American and real options under Ornstein-Uhlenbeck processes....Pages 263-277
Back Matter....Pages 279-285

✦ Subjects

Economic Theory; Finance /Banking; Game Theory, Economics, Social and Behav. Sciences