Abstract: The objective of this paper is to provide a numerical procedure
of addressing the optimal stopping time of employee’s professional profile
formation defined on a finite continuous time interval The
optimal time of termination of employee’s education is addressed by maximizing
the employer’s expected discounted profits. This is solved by using an
approximate discrete-time version of Black and Scholes model. Specifically, the
binomial Cox-Ross-Rubinstein pricing model is being used to value employer’s
profile formation option by using an equivalent measure for which the discounted
price process is a martingale. This is illustrated by presenting specific
numerical example.
Finally, it is proved by using “Doob-Meyer decomposition”
of the Snell envelope of employer’s discounted payoff process that the editor
of the profile formation option has at his disposal a strategy of hedging.
Keywords and phrases: optimal stopping theory, Brownian motion, Markov processes with continuous parameter.
