Optimal stopping in Hilbert spaces and pricing of American options

Abstract. We consider an optimal stopping problem for a Hilbert-space valued diffusion. We prove that the value function of the problem is the unique viscosity solution of an obstacle problem for the associated parabolic partial differential equation in the Hilbert space. The results are applied to investigate the pricing of American interest rate options in the lognormal Heath-Jarrow-Morton model of yield curve dynamics.

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