Work

On the Time Consistent Solution to Optimal Stopping Problems with Expectation Constraint

Year: 2024

Type: article

Abstract: We study the (weak) equilibrium problem arising from the problem of optimally stopping a one-dimensional diffusion subject to an expectation constraint on the time until stopping. The weak equilibrium problem is realized with a set of randomized but purely state dependent stopping times as admissible strategies. We derive a verification theorem and necessary conditions for equilibria, which together basically characterize all equilibria. Furthermore, additional structural properties of equilibria are obtained to feed a possible guess-and-verify approach, which is then illustrated by an example.

Source: Applied Mathematics & Optimization

DOI: 10.1007/s00245-024-10202-w

Authors: S. Christensen, M. Klein, B. Schultz

Institution: Christian-Albrechts-Universität zu Kiel

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,590

Funder: Christian-Albrechts-Universität zu Kiel