Two explicit Skorokhod embeddings for simple symmetric random walk

DOI10.1016/J.SPA.2018.09.013MaRDI QIDQ2274306zbMATH OpenOpenAlexWikidataFDO

Authors Xue Dong He, Sang Hu, Jan Obłój, Xun Yu Zhou

Publication date 19 September 2019

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

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://arxiv.org/abs/1705.05635

zbMATH Keywords

Skorokhod embeddingrandomized stopping timesimple symmetric random walkAzéma-Yor stopping time

Mathematics Subject Classification ID

Sums of independent random variables; random walks (60G50) Brownian motion (60J65) Stopping times; optimal stopping problems; gambling theory (60G40) Local time and additive functionals (60J55)

Abstract: Motivated by problems in behavioural finance, we provide two explicit constructions of a randomized stopping time which embeds a given centered distribution $mu$ on integers into a simple symmetric random walk in a uniformly integrable manner. Our first construction has a simple Markovian structure: at each step, we stop if an independent coin with a state-dependent bias returns tails. Our second construction is a discrete analogue of the celebrated Az'ema-Yor solution and requires independent coin tosses only when excursions away from maximum breach predefined levels. Further, this construction maximizes the distribution of the stopped running maximum among all uniformly integrable embeddings of $mu$.

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Cited in

(3)

• Optimal exit time from casino gambling: strategies of precommitted and naive gamblers
• Classes of measures which can be embedded in the simple symmetric random walk
• An explicit solution to the Skorokhod embedding problem for double exponential increments

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