Local time pushed mixed stopping and smooth fit for time-inconsistent stopping problems

DOI10.1137/22M1506651MaRDI QIDQ6403607zbMATH OpenOpenAlexFDO

Authors Andi Bodnariu, Søren Tørholm Christensen, Kristoffer Lindensjö

Publication date 30 June 2022

Full work available at URL https://doi.org/10.1137/22m1506651

Mathematics Subject Classification ID

Applications of Brownian motions and diffusion theory (population genetics, absorption problems, etc.) (60J70) Noncooperative games (91A10) Stopping times; optimal stopping problems; gambling theory (60G40) Dynamic games (91A25) Financial applications of other theories (91G80)

Abstract: We consider the game-theoretic approach to time-inconsistent stopping of a one-dimensional diffusion where the time-inconsistency is due to the presence of a non-exponential (weighted) discount function. In particular, we study (weak) equilibria for this problem in a novel class of mixed (i.e., randomized) stopping times based on a local time construction of the stopping intensity. For a general formulation of the problem we provide a verification theorem giving sufficient conditions for mixed (and pure) equilibria in terms of a set of variational inequalities, including a smooth fit condition. We apply the theory to prove the existence of (mixed) equilibria in a recently studied real options problem in which no pure equilibria exist.

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(5)

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• Time-inconsistent mean-field stopping problems: a regularised equilibrium approach
• On the time consistent solution to optimal stopping problems with expectation constraint
• Mean-semivariance optimal portfolios in discrete time using a game-theoretic approach
• Binomial-tree approximation for time-inconsistent stopping

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