Work

Optimal stopping of Gauss–Markov bridges

Year: 2024

Type: article

Abstract: We solve the non-discounted, finite-horizon optimal stopping problem of a Gauss–Markov bridge by using a time-space transformation approach. The associated optimal stopping boundary is proved to be Lipschitz continuous on any closed interval that excludes the horizon, and it is characterized by the unique solution of an integral equation. A Picard iteration algorithm is discussed and implemented to exemplify the numerical computation and geometry of the optimal stopping boundary for some illustrative cases.

Source: Advances in Applied Probability

DOI: 10.1017/apr.2024.21

Authors: Abel Azze, Bernardo D’Auria, Eduardo García-Portugués

Institutions: CUNEF Universidad, University of Padua, Universidad Carlos III de Madrid

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funders: Ministerio de Ciencia, Innovación y Universidades, Universidad Carlos III de Madrid, European Regional Development Fund, Agencia Estatal de Investigación