An optimal stopping problem in a diffusion-type model with delay

We present an explicit solution to an optimal stopping problem in a model described by a stochastic delay differential equation with an exponential delay measure. The method of proof is based on reducing the initial problem to a free-boundary problem and solving the latter by means of the smooth-fit condition. The problem can be interpreted as pricing special perpetual average American put options in a diffusion-type model with delay.

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Year of publication:	2006
Authors:	Gapeev, Pavel V. ; Reiß, Markus
Published in:	Statistics & Probability Letters. - Elsevier, ISSN 0167-7152. - Vol. 76.2006, 6, p. 601-608
Publisher:	Elsevier
Keywords:	Optimal stopping Stochastic delay differential equation Diffusion process Sufficient statistic Free-boundary problem Smooth fit Girsanov's theorem Ito's formula

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005313837