ON RESELLING OF EUROPEAN OPTION

A. G. KUKUSH, YU. S. MISHURA, AND G. M. SHEVCHENKO

Theory of Stochastic Processes Vol. 12 (28), no. 3–4, 2006, pp. 75–87

On Black and Scholes market investor buys a European call option. At each moment of time till the maturity, he is allowed to resell the option for the quoted market price. A model is proposed, under which there is no arbitrage possibility. It is shown that the optimal reselling problem is equivalent to constructing nonrandom two dimensional stopping domains. For a modified model of the market price, it is shown that the stopping domains have a threshold structure.

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