On Threshold Strategies and the Smooth-Fit Principle for Optimal Stopping Problems

Stéphane Villeneuve

57 citations0/0 files storedJournal of Applied Probability

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Stochastic processes and financial applications Probability and Risk Models Optimization and Search Problems

Abstract

In this paper we investigate sufficient conditions that ensure the optimality of threshold strategies for optimal stopping problems with finite or perpetual maturities. Our result is based on a local-time argument that enables us to give an alternative proof of the smooth-fit principle. Moreover, we present a class of optimal stopping problems for which the propagation of convexity fails.

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References

1994Investment Under Uncertainty.1994Investment under Uncertainty 2007Brownian Motion and Stochastic Calculus 1987Stochastic Differential Equations: An Introduction with Applications.1982The Value of Waiting to Invest 1998Methods of Mathematical Finance 1988Brownian Motion and Stochastic Calculus 1996Handbook of Brownian Motion — Facts and Formulae

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