Optimal prediction of the last-passage time of a transient diffusion

DOI10.1137/130950719MaRDI QIDQ5244641zbMATH OpenOpenAlexFDO

Authors Kristoffer J. Glover, Hardy Hulley

Publication date 27 March 2015

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

Full work available at URL https://arxiv.org/abs/1312.7342

zbMATH Keywords

optimal stoppingoptimal predictionfree-boundary problemslast-passage timestransient diffusions

Mathematics Subject Classification ID

Diffusion processes (60J60) Brownian motion (60J65) Nonlinear ordinary differential equations and systems (34A34) Free boundary problems for PDEs (35R35) Variational inequalities (49J40) Stopping times; optimal stopping problems; gambling theory (60G40) Martingales with continuous parameter (60G44)

Abstract: We identify the integrable stopping time $a{u}_{\ast }$ with minimal $L^1$-distance to the last-passage time $gamm{a}_z$ to a given level $z>0$, for an arbitrary non-negative time-homogeneous transient diffusion $X$. We demonstrate that $a{u}_{\ast }$ is in fact the first time that $X$ assumes a value outside a half-open interval $[0,r_{\ast })$. The upper boundary $r_{\ast }>z$ of this interval is characterised either as the solution for a one-dimensional optimisation problem, or as part of the solution for a free-boundary problem. A number of concrete examples illustrate the result.

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