Abstract: The
objective of this paper is to provide an application of optimal stopping theory
on the employee’s professional profile formation space in a finite time
interval This
is illustrated by presenting specific numerical examples.
We
address the optimal time of termination of education by maximizing the
employer’s expected discounted profits. The problem of addressing the maximum
of employer’s profit is solved by constructing the Snell Envelope of
employer’s stochastic process of the formation discount payoff. Also, the
simple binomial Cox-Ross- Rubinstein pricing model is being used to show how the
employer’s (investor) profile formation option can be priced using an
equivalent measure for which the discounted price process is a martingale.
Finally, it is proved that the editor
(employer-state) of the profile formation option has at his disposal a strategy
of hedging. That is to say, there is an admissible self-financing strategy (and
the martingale measure is unique), which when followed the editor is hedged.
Keywords and phrases: optimal stopping theory, Martingale, price theory and market structure.
