February 2024 Lp optimal prediction of the last zero of a spectrally negative Lévy process
Erik J. Baurdoux, José M. Pedraza
Author Affiliations +
Ann. Appl. Probab. 34(1B): 1350-1402 (February 2024). DOI: 10.1214/23-AAP1994

Abstract

Given a spectrally negative Lévy process X drifting to infinity, (inspired on the early ideas of Shiryaev (2002)) we are interested in finding a stopping time that minimises the Lp distance (p>1) with g, the last time X is negative. The solution is substantially more difficult compared to the case p=1, for which it was shown by Baurdoux and Pedraza (2020) that it is optimal to stop as soon as X exceeds a constant barrier. In the case of p>1 treated here, we prove that solving this optimal prediction problem is equivalent to solving an optimal stopping problem in terms of a two-dimensional strong Markov process that incorporates the length of the current positive excursion away from 0. We show that an optimal stopping time is now given by the first time that X exceeds a nonincreasing and nonnegative curve depending on the length of the current positive excursion away from 0. We further characterise the optimal boundary and the value function as the unique solution of a nonlinear system of integral equations within a subclass of functions. As examples, the case of a Brownian motion with drift and a Brownian motion with drift perturbed by a Poisson process with exponential jumps are considered.

Funding Statement

Support from the Department of Statistics of LSE and the LSE Ph.D. Studentship is gratefully acknowledged by José M. Pedraza.

Acknowledgments

The authors would like to thank two anonymous referees for their helpful comments and suggestions.

Citation

Download Citation

Erik J. Baurdoux. José M. Pedraza. "Lp optimal prediction of the last zero of a spectrally negative Lévy process." Ann. Appl. Probab. 34 (1B) 1350 - 1402, February 2024. https://doi.org/10.1214/23-AAP1994

Information

Received: 1 March 2022; Revised: 1 April 2023; Published: February 2024
First available in Project Euclid: 1 February 2024

MathSciNet: MR4700261
Digital Object Identifier: 10.1214/23-AAP1994

Subjects:
Primary: 60G40 , 62M20
Secondary: 60G51

Keywords: Lévy processes , optimal prediction , Optimal stopping

Rights: Copyright © 2024 Institute of Mathematical Statistics

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Vol.34 • No. 1B • February 2024
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