How to Detect a Salami Slicer: A Stochastic Controller-and-Stopper Game with Unknown Competition

DOI10.1137/21M139044XzbMATH Open1485.91016arXiv2010.03619OpenAlexW4214700175MaRDI QIDQ5037503FDOQ5037503

Authors: Erik Ekström, Kristoffer Lindensjö, Marcus Olofsson 

Publication date: 1 March 2022

Published in: SIAM Journal on Control and Optimization (Search for Journal in Brave)

Abstract: We consider a stochastic game of control and stopping specified in terms of a process $X_t=-hetaLambd{a}_t+W_t$, representing the holdings of Player 1, where $W$ is a Brownian motion, $heta$ is a Bernoulli random variable indicating whether Player 2 is active or not, and $Lambda$ is a non-decreasing process representing the accumulated "theft" or "fraud" performed by Player 2 (if active) against Player 1. Player 1 cannot observe $heta$ or $Lambda$ directly, but can merely observe the path of the process $X$ and may choose a stopping rule $au$ to deactivate Player 2 at a cost $M$. Player 1 thus does not know if she is the victim of fraud and operates in this sense under unknown competition. Player 2 can observe both $heta$ and $W$ and seeks to choose the fraud strategy $Lambda$ that maximizes the expected discounted amount [{mathbb E} left [ hetaint _0^{ au} e^{-rs} dLambda_s ight ],] whereas Player 1 seeks to choose the stopping strategy $au$ so as to minimize the expected discounted cost [{mathbb E} left [ hetaint _0^{ au} e^{-rs} dLambda_s + e^{-r au}M{mathbb I}_{{ au<infty}} ight ].] This non-zero-sum game appears to be novel and is motivated by applications in fraud detection; it combines filtering (detection), non-singular control, stopping, strategic features (games) and asymmetric information. We derive Nash equilibria for this game; for some parameter values we find an equilibrium in pure strategies, and for other parameter values we find an equilibrium by allowing for randomized stopping strategies.

Full work available at URL: https://arxiv.org/abs/2010.03619

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zbMATH Keywords

optimal stoppingstochastic optimal controlstochastic game theoryfraud detection

Mathematics Subject Classification ID

Stopping times; optimal stopping problems; gambling theory (60G40) Stochastic games, stochastic differential games (91A15) Games of timing (91A55) Optimal stochastic control (93E20)

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Cited In (4)

• Rogue traders
• The de Finetti Problem with Uncertain Competition
• A detection problem with a monotone observation rate
• A sequential estimation problem with control and discretionary stopping

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