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Selected Problems in Financial Mathematics

This thesis, consisting of six papers and a summary, studies the area of continuous time financial mathematics. A unifying theme for many of the problems studied is the implications of possible mis-specifications of models. Intimately connected with this question is, perhaps surprisingly, convexity properties of option prices. We also study qualitative behavior of different optimal stopping boundaries appearing in option pricing. In Paper I a new condition on the contract function of an American option is provided under which the option price increases monotonically in the volatility. It is also shown that American option prices are continuous in the volatility. In Paper II an explicit pricing formula for the perpetual American put option in the Constant Elasticity of Variance model is derived. Moreover, different properties of this price are studied. Paper III deals with the Russian option with a finite time horizon. It is shown that the value of the Russian option solves a certain free boundary problem. This information is used to analyze the optimal stopping boundary. A study of perpetual game options is performed in Paper IV. One of the main results provides a condition under which the value of the option is increasing in the volatility. In Paper V options written on several underlying assets are considered. It is shown that, within a large class of models, the only model for the stock prices that assigns convex option prices to all convex contract functions is geometric Brownian motion. Finally, in Paper VI it is shown that the optimal stopping boundary for the American put option is convex in the standard Black-Scholes model.

Identiferoai:union.ndltd.org:UPSALLA1/oai:DiVA.org:uu-4574
Date January 2004
CreatorsEkström, Erik
PublisherUppsala universitet, Matematiska institutionen, Uppsala : Acta Universitatis Upsaliensis
Source SetsDiVA Archive at Upsalla University
LanguageEnglish
Detected LanguageEnglish
TypeDoctoral thesis, comprehensive summary, info:eu-repo/semantics/doctoralThesis, text
Formatapplication/pdf
Rightsinfo:eu-repo/semantics/openAccess
RelationUppsala Dissertations in Mathematics, 1401-2049 ; 38

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