A Solvable Two-dimensional Optimal Stopping Problem in the Presence of Ambiguity
Mathematical Finance
2019-05-15 v1 Optimization and Control
Probability
Abstract
According to conventional wisdom, ambiguity accelerates optimal timing by decreasing the value of waiting in comparison with the unambiguous benchmark case. We study this mechanism in a multidimensional setting and show that in a multifactor model ambiguity does not only influence the rate at which the underlying processes are expected to grow, it also affects the rate at which the problem is discounted. This mechanism where nature also selects the rate at which the problem is discounted cannot appear in a one-dimensional setting and as such we identify an indirect way of how ambiguity affects optimal timing.
Cite
@article{arxiv.1905.05429,
title = {A Solvable Two-dimensional Optimal Stopping Problem in the Presence of Ambiguity},
author = {Sören Christensen and Luis H. R. Alvarez E},
journal= {arXiv preprint arXiv:1905.05429},
year = {2019}
}