1-4 September 2015
Angers - France
Europe/Paris timezone

Variational View to Optimal Stopping with Application to Real Options

4 Sep 2015, 15:00
30m
Angers - France

Angers - France

Speaker

Dr Alexander Slastnikov (CEMI)

Description

We describe a variational approach to solving optimal stopping problems for diffusion processes. In the framework of this approach, one can find optimal stopping time over the class of first exit time from the set (for a given family of sets). For the case of one-parametric family of sets we give necessary and sufficient conditions for optimality of stopping time over this class. For one-dimensional diffusion processes and two families of `semi-intervals’, we set necessary and sufficient conditions under which the optimal stopping time has a threshold structure. We study smooth pasting condition from a variational view, present some examples when the solution to the free-boundary problem is not the solution to the optimal stopping problem, and give some results about a relation between solutions to free-boundary problem and optimal stopping problem. At last, some applications of these results to both investment timing and optimal abandonment models are considered.

Primary author

Co-author

Prof. Vadim Arkin (CEMI)

Presentation Materials