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Representations for optimal stopping under dynamic monetary utility functionals

Author

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  • Krätschmer, Volker
  • Schoenmakers, John G. M.
Abstract
In this paper we consider the optimal stopping problem for general dynamic monetary utility functionals. Sufficient conditions for the Bellman principle and the existence of optimal stopping times are provided. Particular attention is payed to representations which allow for a numerical treatment in real situations. To this aim, generalizations of standard evaluation methods like policy iteration, dual and consumption based approaches are developed in the context of general dynamic monetary utility functionals. As a result, it turns out that the possibility of a particular generalization depends on specific properties of the utility functional under consideration.

Suggested Citation

  • Krätschmer, Volker & Schoenmakers, John G. M., 2009. "Representations for optimal stopping under dynamic monetary utility functionals," SFB 649 Discussion Papers 2009-055, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2009-055
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    References listed on IDEAS

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    12. Anastasia Kolodko & John Schoenmakers, 2006. "Iterative construction of the optimal Bermudan stopping time," Finance and Stochastics, Springer, vol. 10(1), pages 27-49, January.
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    More about this item

    Keywords

    monetary utility functionals; optimal stopping; duality; policy iteration;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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