Journal
INTERNATIONAL JOURNAL OF THEORETICAL AND APPLIED FINANCE
Volume 8, Issue 1, Pages 123-139Publisher
WORLD SCIENTIFIC PUBL CO PTE LTD
DOI: 10.1142/S0219024905002895
Keywords
Optimal stopping problem; HJB Variational Inequalities; option pricing
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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.
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