Optimal variance stopping with linear diffusions

DOI10.1016/J.SPA.2019.07.001MaRDI QIDQ1986029zbMATH OpenOpenAlexWikidataFDO

Authors Kamille Sofie Tågholt Gad, Pekka Matomäki

Publication date 7 April 2020

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

Full work available at URL https://arxiv.org/abs/1612.09167

zbMATH Keywords

varianceoptimal stoppinglinear diffusioninfinite zero-sum gamenon-linear optimal stopping

Mathematics Subject Classification ID

Diffusion processes (60J60) Nonlinear programming (90C30) 2-person games (91A05) Decision theory for games (91A35) Stopping times; optimal stopping problems; gambling theory (60G40)

Abstract: We study the optimal stopping problem of maximizing the variance of an unkilled linear diffusion. Especially, we demonstrate how the problem can be solved as a convex two-player zero-sum game, and reveal quite surprising application of game theory by doing so. Our main result shows that an optimal solution can, in general case, be found among stopping times that are mixtures of two hitting times. This and other revealed phenomena together with suggested solution methods could be helpful when facing more complex non-linear optimal stopping problems. The results are illustrated by a few examples.

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Cited in

(6)

• Some optimal variance stopping problems revisited with an application to the Italian Ftse-Mib stock index
• Dynamic optimality in optimal variance stopping problems
• Variance optimal stopping for geometric Lévy processes
• Explicit solutions to some optimal variance stopping problems
• A remark on optimal variance stopping problems
• Time-inconsistent stopping, myopic adjustment and equilibrium stability: with a mean-variance application

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