Year: 2013
Type: preprint
Abstract: We propose an alternative approach for solving a number of well-studied optimal stopping problems for Lévy processes. Instead of the usual method of guess-and-verify based on martingale properties of the value function, we suggest a more direct method by showing that the general theory of optimal stopping for strong Markov processes together with some elementary observations imply that the stopping set must be of a certain form for the optimal stopping problems we consider. The independence of increments and the strong Markov property of Lévy processes then allow us to use straightforward optimisation over a real-valued parameter to determine this stopping set. We illustrate this approach by applying it to the McKean optimal stopping problem (American put), the Novikov--Shiryaev optimal stopping problem and the Shepp--Shiryaev optimal stopping problem (Russian option).
Source: arXiv (Cornell University)
Author: Baurdoux, Erik J.
Institution: London School of Economics and Political Science
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2280038150