Two-sided optimal stopping for Lévy processes (Q2064841)

The authors study the infinite horizon optimal stopping problems for a Lévy processes with a two-sided reward function. The purpose of the paper is to obtain a verification theorem for the optimal stopping problem of a Lévy process in the two sided case, through the sum of two averaging functions. A two-sided verification theorem is presented in terms of the overall supremum and the overall infimum of the process. Also, a result how to compute the angle of the value function at the optimal thresholds of the stopping region is given. Some attention is paid to the natural necessary conditions for smooth pasting, that depend on the exponential moments of the process and the behaviour of the averaging function. These conditions can be applied both to one-sided problems and to the two sided problems considered in the present paper. Then the authors provide a simple example that seems not possible to be solved with the previously known techniques. Namely, the optimal stopping problem of a compound Poisson process with two-sided exponential jumps (no Gaussian component) and a two-sided payoff function is solved. In this example, the smooth-pasting condition does not hold.