Optimal stopping problems for the maximum process with upper and lower caps (Q389066): Difference between revisions
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Let \(X\) be a spectrally negative Lévy process, and \(\bar{X}_t=s\vee\sup_{0\leq u\leq t}X_u\). The author is interested in the following optimal stopping problem: \(V_\varepsilon^*(x,s)=\sup_{\tau\in \mathcal{M}}\operatorname{E}_{x,s}[e^{-q\tau +\bar{X}_\tau\wedge\varepsilon}]\) for \(t\geq 0\), \(s\geq x\). Since the constant \(\varepsilon\) bounds the process \(\bar{X}\) from above, it is referred to as the upper cup. So, a capped version of the Shepp-Shiryaev optimal stopping problem is considered. The method of solving the optimal stopping problem consists of a verification technique, that is, a candidate solution is heuristically derived and then it is verified that it is indeed a solution. The solution is provided explicitly in terms of scale functions. The optimal stopping boundary is characterized by an ordinary differential equation involving scale functions. A modification with the lower cap is also considered. Whilst this is already included in the starting point of the maximum process \(\bar{X}\), there is a stopping problem that captures this idea of lower cap in the sense that the decision to exercise has to be made before \(X\) drops below a certain level. After proving the main results, some examples are considered, including Brownian motion with drift and with compound Poisson jumps and also stable processes. | |||
Property / review text: Let \(X\) be a spectrally negative Lévy process, and \(\bar{X}_t=s\vee\sup_{0\leq u\leq t}X_u\). The author is interested in the following optimal stopping problem: \(V_\varepsilon^*(x,s)=\sup_{\tau\in \mathcal{M}}\operatorname{E}_{x,s}[e^{-q\tau +\bar{X}_\tau\wedge\varepsilon}]\) for \(t\geq 0\), \(s\geq x\). Since the constant \(\varepsilon\) bounds the process \(\bar{X}\) from above, it is referred to as the upper cup. So, a capped version of the Shepp-Shiryaev optimal stopping problem is considered. The method of solving the optimal stopping problem consists of a verification technique, that is, a candidate solution is heuristically derived and then it is verified that it is indeed a solution. The solution is provided explicitly in terms of scale functions. The optimal stopping boundary is characterized by an ordinary differential equation involving scale functions. A modification with the lower cap is also considered. Whilst this is already included in the starting point of the maximum process \(\bar{X}\), there is a stopping problem that captures this idea of lower cap in the sense that the decision to exercise has to be made before \(X\) drops below a certain level. After proving the main results, some examples are considered, including Brownian motion with drift and with compound Poisson jumps and also stable processes. / rank | |||
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Property / reviewed by | |||
Property / reviewed by: Yuliya S. Mishura / rank | |||
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Property / Mathematics Subject Classification ID | |||
Property / Mathematics Subject Classification ID: 60G40 / rank | |||
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Property / Mathematics Subject Classification ID | |||
Property / Mathematics Subject Classification ID: 60G51 / rank | |||
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Property / Mathematics Subject Classification ID | |||
Property / Mathematics Subject Classification ID: 60J75 / rank | |||
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Property / zbMATH DE Number | |||
Property / zbMATH DE Number: 6247412 / rank | |||
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Property / zbMATH Keywords | |||
optimal stopping problem | |||
Property / zbMATH Keywords: optimal stopping problem / rank | |||
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running maximum | |||
Property / zbMATH Keywords: running maximum / rank | |||
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spectrally negative Lévy process | |||
Property / zbMATH Keywords: spectrally negative Lévy process / rank | |||
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upper caps | |||
Property / zbMATH Keywords: upper caps / rank | |||
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lower caps | |||
Property / zbMATH Keywords: lower caps / rank | |||
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Revision as of 13:37, 29 June 2023
scientific article
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English | Optimal stopping problems for the maximum process with upper and lower caps |
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Optimal stopping problems for the maximum process with upper and lower caps (English)
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17 January 2014
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Let \(X\) be a spectrally negative Lévy process, and \(\bar{X}_t=s\vee\sup_{0\leq u\leq t}X_u\). The author is interested in the following optimal stopping problem: \(V_\varepsilon^*(x,s)=\sup_{\tau\in \mathcal{M}}\operatorname{E}_{x,s}[e^{-q\tau +\bar{X}_\tau\wedge\varepsilon}]\) for \(t\geq 0\), \(s\geq x\). Since the constant \(\varepsilon\) bounds the process \(\bar{X}\) from above, it is referred to as the upper cup. So, a capped version of the Shepp-Shiryaev optimal stopping problem is considered. The method of solving the optimal stopping problem consists of a verification technique, that is, a candidate solution is heuristically derived and then it is verified that it is indeed a solution. The solution is provided explicitly in terms of scale functions. The optimal stopping boundary is characterized by an ordinary differential equation involving scale functions. A modification with the lower cap is also considered. Whilst this is already included in the starting point of the maximum process \(\bar{X}\), there is a stopping problem that captures this idea of lower cap in the sense that the decision to exercise has to be made before \(X\) drops below a certain level. After proving the main results, some examples are considered, including Brownian motion with drift and with compound Poisson jumps and also stable processes.
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optimal stopping problem
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running maximum
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spectrally negative Lévy process
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upper caps
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lower caps
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