Publication Cover
Stochastics
An International Journal of Probability and Stochastic Processes
Volume 83, 2011 - Issue 4-6: Optimal stopping with Applications
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Original Articles

Constructing time-homogeneous generalized diffusions consistent with optimal stopping values

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Pages 477-503 | Received 04 Nov 2009, Accepted 06 Sep 2010, Published online: 09 Jun 2011
 

Abstract

Consider a set of discounted optimal stopping problems for a one-parameter family of objective functions and a fixed diffusion process, started at a fixed point. A standard problem in stochastic control/optimal stopping is to solve for the problem value in this setting. In this article we consider an inverse problem; given the set of problem values for a family of objective functions, we aim to recover the diffusion. Under a natural assumption on the family of objective functions, we can characterize the existence and uniqueness of a diffusion for which the optimal stopping problems have the specified values. The solution of the problem relies on techniques from generalized convexity theory.

Acknowledgement

DGH would like to thank Nizar Touzi for suggesting generalized convexity as an approach for this problem.

Notes

Additional information

Notes on contributors

Martin Klimmek

1 1. [email protected]

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