A FirstOrder BSPDE for Swing Option Pricing: Classical Solutions
Abstract
In Bender and Dokuchaev (2013), we studied a control problem related to swing option pricing in a general nonMarkovian setting. The main result there shows that the value process of this control problem can be uniquely characterized in terms of a first order backward SPDE and a pathwise differential inclusion. In the present paper we additionally assume that the cashflow process of the swing option is leftcontinuous in expectation (LCE). Under this assumption we show that the value process is continuously differentiable in the space variable that represents the volume which the holder of the option can still exercise until maturity. This gives rise to an existence and uniqueness result for the corresponding backward SPDE in a classical sense. We also explicitly represent the space derivative of the value process in terms of a nonstandard optimal stopping problem over a subset of predictable stopping times. This representation can be applied to derive a dual minimization problem in terms of martingales.
 Publication:

arXiv eprints
 Pub Date:
 February 2014
 DOI:
 10.48550/arXiv.1402.6444
 arXiv:
 arXiv:1402.6444
 Bibcode:
 2014arXiv1402.6444B
 Keywords:

 Quantitative Finance  Pricing of Securities;
 Mathematics  Probability;
 60H15;
 49L20;
 91G20
 EPrint:
 Mathematical Finance, Vol. 27, 902925, 2017