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Mathematical analysis of a variational inequality modelling perpetual executive stock options
Published online by Cambridge University Press: 07 January 2015
Abstract
In this paper, we establish the existence and uniqueness of a classical solution of a degenerate parabolic variational inequality of which a strong solution was shown to exist by Song and Yu [21]. The problem arises from optimal stochastic control of exercising continuously perpetual executive stock options (ESOs). We also characterize the basic graph, continuity, and monotonicity properties of the free boundary from which the optimal control strategy can be described precisely.
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