Solving non–linear optimal stopping problems by the method of time–change

DOI10.1080/07362990008809698MaRDI QIDQ4518329zbMATH OpenOpenAlexFDO

Authors Goran Peskir, Jesper Lund Pedersen

Publication date 6 February 2001

Published in Stochastic Analysis and Applications (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1080/07362990008809698

zbMATH Keywords

Bessel processBrownian motiondiffusionfree-boundary problemnonlinear stopping problemOrnstein-Uhlenbeck processsmooth fit principletime change

Mathematics Subject Classification ID

Inequalities; stochastic orderings (60E15) Stopping times; optimal stopping problems; gambling theory (60G40) Continuous-time Markov processes on general state spaces (60J25) Diffusion processes (60J60)

Review text

The authors present a deterministic time-change method that enables one to solve some nonlinear optimal problems explicitly by reducing the original problem to a new easier one. The method is illustrated in detail through several examples of optimal stopping problems given by the following value functions: \[ V_1(t,x)=\sup_\tau{\mathbb E}\big(|x+ B_\tau|-c\sqrt{t+\tau}\big);\qquad V_2(t,x)=\sup_\tau{\mathbb E}\big((x+B_\tau)/ (t+\tau)\big); \] \[ V_3(t,x)=\sup_\tau{\mathbb E} \big(|x+B_\tau|/(t+\tau)\big);\qquad V_4(t,x)=\sup_\tau {\mathbb E}\Big(\int_0^\tau {x+B_{u}\over(t+u)^2} du\Big). \] Here the suprema are taken over stopping times \(\tau\) with respect to the standard one-dimensional Brownian motion \(B_t\), \(t\geq 0\).

Recommendations

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Cites work

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• scientific article; zbMATH DE number 4020069 (Why is no real title available?)
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Cited in

(9)

• Value function and optimal rule on the optimal stopping problem for continuous-time Markov processes
• Time-consistent stopping under decreasing impatience
• Nonlinear PDE approach to time-inconsistent optimal stopping
• Optimal liquidation of a call spread
• Optimal Stopping of a Brownian Bridge
• scientific article; zbMATH DE number 1983453 (Why is no real title available?)
• A weak-type inequality for the martingale square function
• Optimal stopping for the exponential of a Brownian bridge
• The Gapeev-Shiryaev conjecture

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