The Solution of Some Discretionary Stopping Problems

40 Pages Posted: 5 Apr 2014 Last revised: 18 Sep 2015

See all articles by Timothy C. Johnson

Timothy C. Johnson

Heriot-Watt University - Maxwell Institute for Mathematical Sciences

Date Written: September 15, 2015

Abstract

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.

Keywords: Stochastic Control, Optimal stopping, Dynamic programming, Finance

JEL Classification: C61, G13

Suggested Citation

Johnson, Timothy C., The Solution of Some Discretionary Stopping Problems (September 15, 2015). Available at SSRN: https://ssrn.com/abstract=2420214 or http://dx.doi.org/10.2139/ssrn.2420214

Timothy C. Johnson (Contact Author)

Heriot-Watt University - Maxwell Institute for Mathematical Sciences ( email )

Edinburgh, Scotland EH14 4AS
United Kingdom

HOME PAGE: http://www.ma.hw.ac.uk/~timj/

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