On data-based optimal stopping under stationarity and ergodicity

DOI10.3150/12-BEJ439MaRDI QIDQ358137zbMATH OpenOpenAlexFDO

Authors Harro Walk, Michael Kohler

Publication date 16 August 2013

Published in Bernoulli (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1307.5976, https://projecteuclid.org/euclid.bj/1372251148

zbMATH Keywords

ergodicitypredictionstationaritynonparametric regressionAmerican optionsuniversal consistency

Mathematics Subject Classification ID

Nonparametric regression and quantile regression (62G08) Derivative securities (option pricing, hedging, etc.) (91G20) Applications of statistics to actuarial sciences and financial mathematics (62P05) Optimal stopping in statistics (62L15)

Abstract: The problem of optimal stopping with finite horizon in discrete time is considered in view of maximizing the expected gain. The algorithm proposed in this paper is completely nonparametric in the sense that it uses observed data from the past of the process up to time $-n+1$, $ninmathbbN$, not relying on any specific model assumption. Kernel regression estimation of conditional expectations and prediction theory of individual sequences are used as tools. It is shown that the algorithm is universally consistent: the achieved expected gain converges to the optimal value for $noinfty$ whenever the underlying process is stationary and ergodic. An application to exercising American options is given, and the algorithm is illustrated by simulated data.

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Cited in

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• Optimal stopping for image smoothing based on kernel density estimation
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• Weakly universally consistent static forecasting of stationary and ergodic time series via local averaging and least squares estimates
• Nonparametric learning for impulse control problems -- exploration vs. exploitation

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