Optimal decision under ambiguity for diffusion processes

DOI10.1007/S00186-012-0425-2zbMATH Open1281.60040arXiv1110.3897OpenAlexW3102577113MaRDI QIDQ2392786FDOQ2392786

Authors: Sören Christensen 

Publication date: 2 August 2013

Published in: Mathematical Methods of Operations Research (Search for Journal in Brave)

Abstract: In this paper we consider stochastic optimization problems for an ambiguity averse decision maker who is uncertain about the parameters of the underlying process. In a first part we consider problems of optimal stopping under drift ambiguity for one-dimensional diffusion processes. Analogously to the case of ordinary optimal stopping problems for one-dimensional Brownian motions we reduce the problem to the geometric problem of finding the smallest majorant of the reward function in a two-parameter function space. In a second part we solve optimal stopping problems when the underlying process may crash down. These problems are reduced to one optimal stopping problem and one Dynkin game. Examples are discussed.

Full work available at URL: https://arxiv.org/abs/1110.3897

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zbMATH Keywords

optimal stoppingambiguity aversiondiffusion processesDynkin gamescrash-scenario

Mathematics Subject Classification ID

Diffusion processes (60J60) Stopping times; optimal stopping problems; gambling theory (60G40)

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Cited In (8)

• Multidimensional investment problem
• A Knightian irreversible investment problem
• Optimal stopping under ambiguity in continuous time
• The optimal decision rule in the Kiefer-Weiss problem for a Brownian motion
• Solutions for Poissonian stopping problems of linear diffusions via extremal processes
• Nonparametric learning for impulse control problems -- exploration vs. exploitation
• A class of solvable multidimensional stopping problems in the presence of Knightian uncertainty
• Optimal stopping under uncertainty in drift and jump intensity

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