Generalized exponential basis for efficient solving of homogeneous diffusion free boundary problems: Russian option pricing

This paper proposes a new method for efficiently and accurately price finite horizon Russian options. The method is based on the application of the transmutation operators theory and allows the construction of a complete... [ view full abstract ]

This paper proposes a new method for efficiently and accurately price finite horizon Russian options. The method is based on the application of the transmutation operators theory and allows the construction of a complete system of solutions of the partial differential equation under consideration. This approach can be generalized for the large class of optimal stopping problems that can be reduced to free boundary problems.