Note on the (non-)smoothness of discrete time value functions in optimal stopping

DOI10.1214/20-ECP335MaRDI QIDQ2201538zbMATHFDO

Authors Yanyan Li

Publication date 29 September 2020

Published in Electronic Communications in Probability (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1911.05414

zbMATH Keywords

random walkoptimal stoppingsmoothnessvalue functionChow-Robbins gamecontinuation setdiscrete time stopping problem

Mathematics Subject Classification ID

Sums of independent random variables; random walks (60G50) Stopping times; optimal stopping problems; gambling theory (60G40)

Abstract: We consider the discrete time stopping problem [ V(t,x) = sup_{ au}E_{(t,x)}[g( au, X_ au)],] where $X$ is a random walk. It is well known that the value function $V$ is in general not smooth on the boundary of the continuation set $partialC$. We show that under some conditions $V$ is not smooth in the interior of $C$ either. More precisely we show that $V$ is not differentiable in the $x$ component on a dense subset of $C$. As an example we consider the Chow-Robbins game. We give evidence that as well $partialC$ is not smooth and that $C$ is not convex, even if $g(t,cdot)$ is for every $t$.

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Cites work

• scientific article; zbMATH DE number 5016447 (Why is no real title available?)
• Explicit Solutions to Some Problems of Optimal Stopping
• Nonsmooth equations in optimization. Regularity, calculus, methods and applications
• On Threshold Strategies and the Smooth-Fit Principle for Optimal Stopping Problems
• On optimal stopping rules for \(s_ n /n\)
• On the smoothness of value functions and the existence of optimal strategies in diffusion models
• The optimal stopping problem for \(S_n/n\) and its ramifications
• Timing in the presence of directional predictability: optimal stopping of skew Brownian motion

Cited in

(1)

• On the \(\frac{S_n}{n}\) problem

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