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

DOI10.1137/21M139044XMaRDI QIDQ5037503zbMATH OpenOpenAlexFDO

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)

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

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)

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.

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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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