On the Approximation of Infinite Dimensional Optimal Stopping Problems with Application to Mathematical Finance

  • Authors:
  • Michael D. Marcozzi

  • Affiliations:
  • Department of Mathematical Sciences, University of Nevada, Las Vegas, Las Vegas, USA 89154-4020

  • Venue:
  • Journal of Scientific Computing
  • Year:
  • 2008

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Abstract

We consider the approximation of the optimal stopping problem for infinite dimensional processes by variational methods. To this end, we employ a Fourier-Legendre representation for the state space and exhaust an indexed family of regularized Hamilton-Jacobi characterizations. We implement our results utilizing penalization and a method-of-lines semi-implicit finite element method; application to term-structure valuation problems from mathematical finance demonstrate the applicability of the approach.