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An asymptotic expansion for the optimal stopping boundary in problems with non-linear costs of observation

Part of: Stochastic processes Sequential methods

Published online by Cambridge University Press:  14 July 2016

A. Irle ,
O. Kubillus  and
V. Paulsen
A. Irle*
Affiliation:
Universität Kiel
O. Kubillus*
Affiliation:
Universität Kiel
V. Paulsen*
Affiliation:
Universität Kiel
*
∗ Postal address: Universität Kiel, Mathematisches Seminar, Ludewig Meyn Str. 4, D-24098 Kiel, Germany.
∗ Postal address: Universität Kiel, Mathematisches Seminar, Ludewig Meyn Str. 4, D-24098 Kiel, Germany.
∗ Postal address: Universität Kiel, Mathematisches Seminar, Ludewig Meyn Str. 4, D-24098 Kiel, Germany.
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Abstract

The assumption of linear costs of observation usually leads to optimal stopping boundaries which are straight lines. For non-linear costs of observation, the question arises of how the shape of cost functions influences the shape of optimal stopping boundaries. In Irle (1987), (1988) it was shown that, under suitable assumptions on c, for the problem of optimal stopping (Wt + x)+ - c(s + t), t ∊ [0,∞), the optimal stopping boundary h(t) can be enscribed between k1/c'(t) and k2/c'(t) for some constants k1, k2. In this paper we find the exact asymptotic expansion h(t) = 1/(4c'(t))(1 + o(1)).

Keywords

optimal stoppingnon-linear boundaryasymptotic expansion

MSC classification

Primary: 60G40: Stopping times; optimal stopping problems; gambling theory
Secondary: 62L15: Optimal stopping
Type
Research Papers
Information
Journal of Applied Probability , Volume 38 , Issue 1 , March 2001 , pp. 67 - 79
Copyright
Copyright © by the Applied Probability Trust 2001 

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