Optimally stopping a Brownian bridge with an unknown pinning time: a Bayesian approach

DOI10.1016/J.SPA.2020.03.007zbMATH Open1494.60042arXiv1902.10261OpenAlexW3012668263MaRDI QIDQ2145807FDOQ2145807

Authors: Kristoffer J. Glover 

Publication date: 20 June 2022

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

Abstract: We consider the problem of optimally stopping a Brownian bridge with an unknown pinning time so as to maximise the value of the process upon stopping. Adopting a Bayesian approach, we assume the stopper has a general continuous prior and is allowed to update their belief about the value of the pinning time through sequential observations of the process. Uncertainty in the pinning time influences both the conditional dynamics of the process and the expected (random) horizon of the optimal stopping problem. We analyse certain gamma and beta distributed priors in detail. Remarkably, the optimal stopping problem in the gamma case becomes time homogeneous and is completely solvable in closed form. Moreover, in the beta case we find that the optimal stopping boundary takes on a square-root form, similar to the classical solution with a known pinning time.

Full work available at URL: https://arxiv.org/abs/1902.10261

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zbMATH Keywords

local timeoptimal stoppingrandom horizonBrownian bridgesbang-bang Brownian motionelastic Killing

Mathematics Subject Classification ID

Bayesian inference (62F15) Stopping times; optimal stopping problems; gambling theory (60G40)

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Cited In (4)

• With or without replacement? Sampling uncertainty in Shepp’s urn scheme
• Stopping Brownian motion without anticipation as close as possible to its ultimate maximum
• On the monotonicity of the stopping boundary for time-inhomogeneous optimal stopping problems
• Optimal Stopping of a Brownian Bridge

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