Date: Monday, December 10, 2012
Location: 2265 North Quad (12:00 PM to 2:00 PM)
Title: Proposal Defense: On controller-stopper problems with jumps and its application to pricing American options
Abstract: We consider controller-stopper problems in which the controlled processes can have jumps. The global filtration is represented by the Brownian filtration, enlarged by the filtration generated by the jump process. We assume that the Brownian motion and jump process are independent, and there exists a probability density function for the jump times and marks. Under these assumptions, we decompose the global controller-stopper problem into controller-stopper problems with respect to the Brownian filtration, which are determined by a backward induction. We apply our decomposition method to indifference pricing of American options under multiple default risk. The backward induction leads to a system of reflected backward stochastic differential equations (RBSDEs). We show there exists a solution to this RBSDE system and the solution provides a characterization of the value function.
Joint work with Erhan Bayraktar.
Speaker: Zhou Zhou
Institution: UM
Event Organizer: Erhan Bayraktar erhan@umich.edu
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