Constrained optimal stopping under a regime-switching model
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arXiv
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| Main Authors: | , |
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| Format: | Preprint |
| Published: |
2022
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| _version_ | 1866929596703703040 |
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| author | Arai, Takuji Takenaka, Masahiko |
| author_facet | Arai, Takuji Takenaka, Masahiko |
| contents | We investigate an optimal stopping problem for the expected value of a discounted payoff on a regime-switching geometric Brownian motion under two constraints on the possible stopping times: only at exogenous random times and only during a specific regime. The main objectives are to show that an optimal stopping time exists as a threshold type under some boundary conditions and to derive expressions of the value functions and the optimal threshold. To this end, we solve the corresponding variational inequality and show that its solution coincides with the value functions. Some numerical results are also introduced. Furthermore, we investigate some asymptotic behaviors. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2204_07914 |
| institution | arXiv |
| publishDate | 2022 |
| record_format | arxiv |
| spellingShingle | Constrained optimal stopping under a regime-switching model Arai, Takuji Takenaka, Masahiko Probability Mathematical Finance We investigate an optimal stopping problem for the expected value of a discounted payoff on a regime-switching geometric Brownian motion under two constraints on the possible stopping times: only at exogenous random times and only during a specific regime. The main objectives are to show that an optimal stopping time exists as a threshold type under some boundary conditions and to derive expressions of the value functions and the optimal threshold. To this end, we solve the corresponding variational inequality and show that its solution coincides with the value functions. Some numerical results are also introduced. Furthermore, we investigate some asymptotic behaviors. |
| title | Constrained optimal stopping under a regime-switching model |
| topic | Probability Mathematical Finance |
| url | https://arxiv.org/abs/2204.07914 |