Optimal stopping under nonlinear expectation

DOI10.1016/J.SPA.2014.04.006MaRDI QIDQ404122zbMATH OpenOpenAlexFDO

Authors Ibrahim Ekren, Nizar Touzi, Jianfeng Zhang

Publication date 4 September 2014

Published in Stochastic Processes and their Applications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1209.6601

zbMATH Keywords

martingaleoptimal stoppingnonlinear expectationSnell envelopesupermartingale

Mathematics Subject Classification ID

Generalizations of martingales (60G48) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Stopping times; optimal stopping problems; gambling theory (60G40) Martingales with continuous parameter (60G44) Applications of stochastic analysis (to PDEs, etc.) (60H30)

Abstract: Let $X$ be a bounded c`adl`ag process with positive jumps defined on the canonical space of continuous paths. We consider the problem of optimal stopping the process $X$ under a nonlinear expectation operator $cE$ defined as the supremum of expectations over a weakly compact family of nondominated measures. We introduce the corresponding nonlinear Snell envelope. Our main objective is to extend the Snell envelope characterization to the present context. Namely, we prove that the nonlinear Snell envelope is an $cE-$supermartingale, and an $cE-$martingale up to its first hitting time of the obstacle $X$. This result is obtained under an additional uniform continuity property of $X$. We also extend the result in the context of a random horizon optimal stopping problem. This result is crucial for the newly developed theory of viscosity solutions of path-dependent PDEs as introduced in Ekren et al., in the semilinear case, and extended to the fully nonlinear case in the accompanying papers (Ekren, Touzi, and Zhang, parts I and II).

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