On an optimal stopping problem of an insider

E. Bayraktar, Zh Zhou

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

We consider the optimal stopping problem v(ε):= supτ∈T0,T E B(τ−ε)+ posed by Shiryaev at the International Conference on Advanced Stochastic Optimization Problems organized by the Steklov Institute of Mathematics in September 2012. Here T > 0 is a fixed time horizon, (Bt)0≦t≦T is the Brownian motion, ε ∈ [0,T] is a constant, and Tε,T is the set of stopping times taking values in [ε, T ]. The solution of this problem is characterized by a path dependent reflected backward stochastic differential equation, from which the continuity of ε → v(ε) follows. For large enough ε, we obtain an explicit expression for v(ε), and for small ε we have lower and upper bounds. The main result of the paper is the asymptotics of v(ε) as ε ↘ 0. As a by-product, we also obtain Lévy’s modulus of continuity result in the L1 sense.

Original languageEnglish (US)
Pages (from-to)129-133
Number of pages5
JournalTheory of Probability and its Applications
Volume61
Issue number1
DOIs
StatePublished - 2017

Bibliographical note

Funding Information:
This work was supported by the National Science Foundation under grant DMS 0955463.

Keywords

  • Lévy’s modulus of continuity for Brownian motion
  • Optimal stopping problem of an insider

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