What Is the 'Optimal Stopping Time' Problem in Option Pricing? ⎊ Path

What Is the ‘Optimal Stopping Time’ Problem in Option Pricing?

The optimal stopping time problem is the challenge of determining the best time to exercise an American option. Since the option can be exercised at any time before expiration, the holder must decide at each moment whether to exercise now or wait.

The optimal stopping time is the point that maximizes the option's expected payoff.

Why Is Early Exercise Generally Not Optimal for an American Call Option on a Non-Dividend-Paying Asset?

What Is the Concept of the ‘Early Exercise Boundary’ in American Option Pricing?

Why Is It Generally Not Optimal to Exercise an American Call Option Early?

What Is the Difference between an American and European Option regarding Early Exercise and Risk?

Can an American Option Ever Be Optimal to Exercise Early?

Why Is the Early Exercise Feature of American Options a Problem for the Black-Scholes and Black-76 Closed-Form Solutions?

What Operational Challenges Would American-Style Exercise Pose for a Crypto Futures Exchange?

How Does the Presence of a ‘Dividend’ (Or Staking Reward) Change the Optimal Exercise Strategy?

Glossar

Optimal Stopping Time

Decision ⎊ Optimal stopping time, within cryptocurrency and financial derivatives, defines the moment a pre-defined strategy dictates the execution of a trade to maximize expected reward, considering inherent stochasticity and transaction costs.