Valentin Tissot-Daguette
Princeton University/USC [in-person]

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Abstract: We study an American derivative where the holder receives the local time of the underlying at the current level. Its price can be seen as the fair strike of a floating, infinitesimal corridor variance swap with early exercise. We derive the dynamic programming equation (DPE) of the associated optimal stopping problem by lifting the underlying process with its flow of occupation measures. The DPE also necessitates an adaptation of Itô's formula to this setting. Numerical approximations are finally discussed.