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2014 Logconcave reward functions and optimal stopping rules of threshold form
Shoou-Ren Hsiau, Yi-Shen Lin, Yi-Ching Yao
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Electron. J. Probab. 19: 1-18 (2014). DOI: 10.1214/EJP.v19-3745

Abstract

In the literature, the problem of maximizing the expected discounted reward over all stopping rules has been explicitly solved for a number of reward functions (including $(\max\{x,0\})^{\nu}$, $\nu>0$, in particular) when the underlying process is either a random walk in discrete time or a L\'evy process in continuous time. All of such reward functions are increasing and logconcave while the corresponding optimal stopping rules have the threshold form. In this paper, we explore the close connection between increasing and logconcave reward functions and optimal stopping rules of threshold form. In the discrete case, we show that if a reward function defined on $\mathbb{Z}$ is nonnegative, increasing and logconcave, then the optimal stopping rule is of threshold form provided the the underlying random walk is skip-free to the right. In the continuous case, it is shown that for a reward function defined on $\mathbb{R}$ which is nonnegative, increasing, logconcave and right-continuous, the optimal stopping rule is of threshold form provided the underlying process is a spectrally negative L\'evy process. Furthermore, we also establish the necessity of logconcavity and monotonicity of a reward function in order for the optimal stopping rule to be of threshold form in the discrete (continuous, \$textit{resp.}$) case when the underlying process belongs to the class of Bernoulli random walks (Brownian motions, \textit{resp.}) with a downward drift.

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Shoou-Ren Hsiau. Yi-Shen Lin. Yi-Ching Yao. "Logconcave reward functions and optimal stopping rules of threshold form." Electron. J. Probab. 19 1 - 18, 2014. https://doi.org/10.1214/EJP.v19-3745

Information

Accepted: 27 December 2014; Published: 2014
First available in Project Euclid: 4 June 2016

zbMATH: 1325.60062
MathSciNet: MR3296536
Digital Object Identifier: 10.1214/EJP.v19-3745

Subjects:
Primary: 60G40
Secondary: 60J10, 60J65, 62L15

JOURNAL ARTICLE
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Vol.19 • 2014
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