Bayesian sequential least-squares estimation for the drift of a Wiener process

DOI10.1016/J.SPA.2019.09.006MaRDI QIDQ2074995zbMATH OpenOpenAlexWikidataFDO

Authors Erik Ekström, Juozas Vaicenavicius, Ioannis Karatzas

Publication date 11 February 2022

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

Full work available at URL https://arxiv.org/abs/1901.05410

zbMATH Keywords

optimal stoppingsequential analysissequential estimation

Mathematics Subject Classification ID

Stopping times; optimal stopping problems; gambling theory (60G40) Sequential statistical analysis (62L10) Sequential estimation (62L12)

Abstract: Given a Wiener process with unknown and unobservable drift, we try to estimate this drift as effectively but also as quickly as possible, in the presence of a quadratic penalty for the estimation error and of a fixed, positive cost per unit of observation time. In a Bayesian framework, where the unobservable drift is assumed to have a known "prior" distribution, this question reduces to choosing judiciously a stopping time for an appropriate diffusion process in natural scale. We establish structural properties of the solution for the corresponding problem of optimal stopping. In particular, we show that, regardless of the prior distribution, the continuation region is monotonically shrinking in time; and provide conditions on the prior distribution guaranteeing a one-sided stopping region. Finally, we illustrate the theoretical results through a detailed study of some concrete prior distributions.

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Cited in

(8)

• Optimally stopping the sample mean of a Wiener process with an unknown drift
• A martingale approach for detecting the drift of a Wiener process
• A sequential estimation problem with control and discretionary stopping
• Bayesian sequential composite hypothesis testing in discrete time
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• Optimal adaptive control with separable drift uncertainty
• A measure-valued HJB perspective on Bayesian optimal adaptive control
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