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Theory of Probability and its Applications / Volume 39 / Issue 1

Theory Probab. Appl. 39, pp. 103-119 (17 pages)

A New Look at Pricing of the ”Russian Option“

L. A. Shepp and A. N. Shiryaev

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The “Russian option” was introduced and calculated with the help of the solution of the optimal stopping problem for a two-dimensional Markov process in [10]. This paper proposes a new derivation of the general results [10]. The key idea is to introduce the dual martingale measure which permits one to reduce the “two-dimensional” optimal stopping problem to a “one-dimensional” one. This approach simplifies the discussion and explain the simplicity of the answer found in [10].

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PUBLICATION DATA

ISSN

0040-585X (print)  
1095-7219 (online)

Publisher

$abstract.society.value is a Member of CrossRef Society for Industrial and Applied Mathematics

ARTICLE DATA

History
Received July 05, 1993
Digital Object Identifier
http://dx.doi.org/10.1137/1139004

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