The Annals of Applied Probability

A zero-sum game between a singular stochastic controller and a discretionary stopper

Daniel Hernandez-Hernandez, Robert S. Simon, and Mihail Zervos

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Abstract

We consider a stochastic differential equation that is controlled by means of an additive finite-variation process. A singular stochastic controller, who is a minimizer, determines this finite-variation process, while a discretionary stopper, who is a maximizer, chooses a stopping time at which the game terminates. We consider two closely related games that are differentiated by whether the controller or the stopper has a first-move advantage. The games’ performance indices involve a running payoff as well as a terminal payoff and penalize control effort expenditure. We derive a set of variational inequalities that can fully characterize the games’ value functions as well as yield Markovian optimal strategies. In particular, we derive the explicit solutions to two special cases and we show that, in general, the games’ value functions fail to be $C^{1}$. The nonuniqueness of the optimal strategy is an interesting feature of the game in which the controller has the first-move advantage.

Article information

Source
Ann. Appl. Probab., Volume 25, Number 1 (2015), 46-80.

Dates
First available in Project Euclid: 16 December 2014

Permanent link to this document
https://projecteuclid.org/euclid.aoap/1418740178

Digital Object Identifier
doi:10.1214/13-AAP986

Mathematical Reviews number (MathSciNet)
MR3297765

Zentralblatt MATH identifier
1307.91019

Subjects
Primary: 91A15: Stochastic games 93E20: Optimal stochastic control 60G40: Stopping times; optimal stopping problems; gambling theory [See also 62L15, 91A60]

Keywords
Zero-sum games singular stochastic control optimal stopping variational inequalities

Citation

Hernandez-Hernandez, Daniel; Simon, Robert S.; Zervos, Mihail. A zero-sum game between a singular stochastic controller and a discretionary stopper. Ann. Appl. Probab. 25 (2015), no. 1, 46--80. doi:10.1214/13-AAP986. https://projecteuclid.org/euclid.aoap/1418740178


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