Optimal stopping of Brownian motion with broken drift
Probability
2018-11-15 v1
Abstract
We solve an optimal stopping problem where the underlying diffusion is Brownian motion on with a positive drift changing at zero. It is assumed that the drift on the negative side is smaller than the drift on the positive side. The main observation is that if then there exists values of the discounting parameter for which it is not optimal to stop in the vicinity of zero where the drift changes. However, when the discounting gets bigger the stopping region becomes connected and contains zero. This is in contrast with results concerning optimal stopping of skew Brownian motion where the skew point is for all values of the discounting parameter in the continuation region.
Keywords
Cite
@article{arxiv.1811.05738,
title = {Optimal stopping of Brownian motion with broken drift},
author = {Ernesto Mordecki and Paavo Salminen},
journal= {arXiv preprint arXiv:1811.05738},
year = {2018}
}
Comments
12 pages, 2 figures