Optimal stopping of a Hilbert space valued diffusion: an infinite dimensional variational inequality

DOI10.1007/S00245-015-9302-8MaRDI QIDQ282076zbMATH OpenOpenAlexWikidataFDO

Authors Maria B. Chiarolla, Tiziano De Angelis

Publication date 12 May 2016

Published in Applied Mathematics and Optimization (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1207.0720

zbMATH Keywords

optimal stoppingHilbert space valued diffusioninfinite-dimensional stochastic analysisparabolic degenerate variational inequalities

Mathematics Subject Classification ID

Diffusion processes (60J60) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Variational inequalities (49J40) Stopping times; optimal stopping problems; gambling theory (60G40) PDEs on infinite-dimensional (e.g., function) spaces (= PDEs in infinitely many variables) (35R15)

Abstract: A finite horizon optimal stopping problem for an infinite dimensional diffusion $X$ is analyzed by means of variational techniques. The diffusion is driven by a SDE on a Hilbert space $mathcalH$ with a non-linear diffusion coefficient $sigma(X)$ and a generic unbounded operator $A$ in the drift term. When the gain function $Theta$ is time-dependent and fulfils mild regularity assumptions, the value function $mathcalU$ of the optimal stopping problem is shown to solve an infinite-dimensional, parabolic, degenerate variational inequality on an unbounded domain. Once the coefficient $sigma(X)$ is specified, the solution of the variational problem is found in a suitable Banach space $mathcalV$ fully characterized in terms of a Gaussian measure $mu$. This work provides the infinite-dimensional counterpart, in the spirit of Bensoussan and Lions cite{Ben-Lio82}, of well-known results on optimal stopping theory and variational inequalities in $mathbb{R}^n$. These results may be useful in several fields, as in mathematical finance when pricing American options in the HJM model.

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Cited in

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• A Singular Stochastic Control Problem with Interconnected Dynamics
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