Optimal stopping with irregular reward functions
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The author considers optimal stopping with finite horizon for one-dimensional diffusions. The diffusion coefficients are assumed to be Borel measurable and to satisfy conditions that guarantee the existence and uniqueness in law of a weak solution and non-explosiveness, The reward function does not have to satisfy any regularity conditions, it is merely assumed to be bounded and Borel measurable. It is proved, that the value function is continuous and can be characterized as the unique solution of a variational inequality in the sense of distributions. However, the analysis applies only to one-dimensional diffusions.
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Cited in
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- The optimal stopping problem revisited
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- Are American options European after all?
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- Behaviorally consistent optimal stopping rules
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