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Efficient pricing of swing options in Lévy-driven models. (English) Zbl 1281.91167
Summary: We consider the problem of pricing swing options with multiple exercise rights in Lévy-driven models. We propose an efficient Wiener-Hopf factorization method that solves multiple parabolic partial integro-differential equations associated with the pricing problem. We compare the proposed method with a finite difference algorithm. Both proposed deterministic methods are related to the dynamic programming principle and lead to the solution of a multiple optimal stopping problem. Numerical examples illustrate the efficiency and the precision of the proposed methods.

MSC:
91G20 Derivative securities (option pricing, hedging, etc.)
91G60 Numerical methods (including Monte Carlo methods)
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