Journal of Applied Mathematics and Decision Sciences
Volume 2009 (2009), Article ID 593986, 13 pages
doi:10.1155/2009/593986
Research Article

Callable Russian Options and Their Optimal Boundaries

Atsuo Suzuki1 and Katsushige Sawaki2

1Faculty of Urban Science, Meijo University, 4-3-3 Nijigaoka, Kani, Gifu 509-0261, Japan
2Nanzan Business School, Nanzan University, 18 Yamazato-cho, Showa-ku, Nagoya 466-8673, Japan

Received 28 November 2008; Accepted 10 February 2009

Academic Editor: Lean Yu

Copyright © 2009 Atsuo Suzuki and Katsushige Sawaki. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

We deal with the pricing of callable Russian options. A callable Russian option is a contract in which both of the seller and the buyer have the rights to cancel and to exercise at any time, respectively. The pricing of such an option can be formulated as an optimal stopping problem between the seller and the buyer, and is analyzed as Dynkin game. We derive the value function of callable Russian options and their optimal boundaries.