Parameter dependent optimal thresholds, indifference levels and inverse optimal stopping problems

DOI10.1239/JAP/1402578639MaRDI QIDQ5169740zbMATH OpenOpenAlexFDO

Authors Martin Klimmek

Publication date 11 July 2014

Published in Journal of Applied Probability (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1302.2769

zbMATH Keywords

Gittins indexparameter dependencethreshold strategygeneralized diffusioninverse optimal stopping problem

Mathematics Subject Classification ID

Diffusion processes (60J60) Stopping times; optimal stopping problems; gambling theory (60G40) Optimal stopping in statistics (62L15)

Abstract: Consider the classic infinite-horizon problem of stopping a one-dimensional diffusion to optimise between running and terminal rewards and suppose we are given a parametrised family of such problems. We provide a general theory of parameter dependence in infinite-horizon stopping problems for which threshold strategies are optimal. The crux of the approach is a supermodularity condition which guarantees that the family of problems is indexable by a set valued map which we call the indifference map. This map is a natural generalisation of the allocation (Gittins) index, a classical quantity in the theory of dynamic allocation. Importantly, the notion of indexability leads to a framework for inverse optimal stopping problems.

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Cited in

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• Parameter-dependent optimal stopping problems for one-dimensional diffusions

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