Optimal stopping of Gauss-Markov bridges

2022/11/10 by Abel Azze, Azze, Abel, Bernardo D’Auria +3 · 1 citation
Computer Science · Economics, Econometrics and Finance · Mathematics · #60G40 #60J60 #FOS: Economics and business #FOS: Mathematics #Markov Chains and Monte Carlo Methods #Mathematical Finance (q-fin.MF) #Optimization and Search Problems #Probability (math.PR) #Stochastic processes and financial applications

paper · pdf · doi:10.48550/arxiv.2211.05835

openalex publication_date 2022/11/10 · openalex created_date 2024/12/05 · openalex updated_date 2026/07/28

Abstract

We solve the non-discounted, finite-horizon optimal stopping problem of a Gauss-Markov bridge by using a time-space transformation approach. The associated optimal stopping boundary is proved to be Lipschitz continuous on any closed interval that excludes the horizon, and it is characterized by the unique solution of an integral equation. A Picard iteration algorithm is discussed and implemented to exemplify the numerical computation and geometry of the optimal stopping boundary for some illustrative cases.

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