Efficient pricing of swing options in Lévy-driven models

Abstract

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.