Valuing Switching options with the moving-boundary method

Abstract Switching options can be deployed in various complex switching problems such as tolling agreements and the offshoring-backshoring problem. Closed form solutions to valuing are not only hard, but also computationally intensive when solving numerically. We develop a new computational method value based on moving boundary method. show how free problem arising from converted into sequence of fixed problems. formulate problem, solve optimal two regimes over finite time horizon. establish theoretical guarantees for this (maximum principles, uniqueness convergence). demonstrate with numerical example sensitivity solution respect parameters.