Open AccessThe solution of some discretionary stopping problems:
Author(s) -
Timothy C. Johnson
Publication year - 2015
Publication title -
ima journal of mathematical control and information
Language(s) - English
Resource type - Journals
eISSN - 1471-6887
pISSN - 0265-0754
DOI - 10.1093/imamci/dnv060
Subject(s) - discounting , optimal stopping , variety (cybernetics) , stochastic game , dynamic programming , variational inequality , mathematical optimization , state (computer science) , mathematical economics , computer science , time horizon , mathematics , economics , finance , algorithm , artificial intelligence
We present a methodology for obtaining explicit solutions to infinite time horizon optimal stopping problems involving general, one-dimensional, Ito diffusions, payoff functions that need not be smooth and state-dependent discounting. This is done within a framework based on dynamic programming techniques employing variational inequalities. The aim of this paper is to facilitate the solution of a wide variety of problems, particularly in finance or economics.
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