On a class of optimal stopping problems for diffusions with discontinuous coefficients

DOI10.1214/07-AAP474zbMATH Open1153.60021arXiv0806.2561MaRDI QIDQ930669FDOQ930669

Mikhail Urusov, Ludger Rüschendorf

Publication date: 1 July 2008

Published in: The Annals of Applied Probability (Search for Journal in Brave)

Abstract: In this paper, we introduce a modification of the free boundary problem related to optimal stopping problems for diffusion processes. This modification allows the application of this PDE method in cases where the usual regularity assumptions on the coefficients and on the gain function are not satisfied. We apply this method to the optimal stopping of integral functionals with exponential discount of the form $E_{x}in{t}_0^{au}{e}^{-lambdas}f(X_s)ds$, $lambdage0$ for one-dimensional diffusions $X$. We prove a general verification theorem which justifies the modified version of the free boundary problem. In the case of no drift and discount, the free boundary problem allows to give a complete and explicit discussion of the stopping problem.

Full work available at URL: https://arxiv.org/abs/0806.2561

zbMATH Keywords

free boundary problemoptimal stoppinglocal times[https://portal.mardi4nfdi.de/w/index.php?title=+Special%3ASearch&search=It%EF%BF%BD%EF%BF%BD-Tanaka+formula&go=Go It��-Tanaka formula]Engelbert-Schmidt conditionoccupation times formulaone-dimensional SDE

Mathematics Subject Classification ID

Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Stopping times; optimal stopping problems; gambling theory (60G40)

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Cited In (15)

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• Optimal Hedging of a Perpetual American Put with a Single Trade
• Optimal stopping of one-dimensional diffusions with integral criteria
• Optimal Stopping Problem for Stochastic Differential Equations with Random Coefficients
• An algorithm to solve optimal stopping problems for one-dimensional diffusions
• Optimal investment with stopping in finite horizon
• Perpetual American options in a diffusion model with piecewise-linear coefficients
• A note on the continuity of free-boundaries in finite-horizon optimal stopping problems for one-dimensional diffusions
• Optimal stopping of oscillating Brownian motion
• Pathwise stochastic control and a class of stochastic partial differential equations
• Discontinuous solutions of deterministic optimal stopping time problems
• The optimal stopping problem revisited
• Title not available (Why is that?)
• A Construction Scheme of the Minimal Dominating Supermartingale arising in the Discrete Parameter Optimal Stopping Problems
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