Time Consistent Stopping For The Mean-Standard Deviation Problem --- The Discrete Time Case
Abstract
Inspired by Strotz's consistent planning strategy, we formulate the infinite horizon mean-variance stopping problem as a subgame perfect Nash equilibrium in order to determine time consistent strategies with no regret. Equilibria among stopping times or randomized stopping times may not exist. This motivates us to consider the notion of liquidation strategies, which lets the stopping right to be divisible. We then argue that the mean-standard deviation variant of this problem makes more sense for this type of strategies in terms of time consistency. It turns out that an equilibrium liquidation strategy always exists. We then analyze whether optimal equilibrium liquidation strategies exist and whether they are unique and observe that neither may hold.
Cite
@article{arxiv.1802.08358,
title = {Time Consistent Stopping For The Mean-Standard Deviation Problem --- The Discrete Time Case},
author = {Erhan Bayraktar and Jingjie Zhang and Zhou Zhou},
journal= {arXiv preprint arXiv:1802.08358},
year = {2019}
}
Comments
Final version. To appear in the SIAM Journal on Financial Mathematics. Keywords: Time-inconsistency, optimal stopping, liquidation strategy, mean-variance problem, subgame perfect Nash equilibrium