Time-Inconsistent Stopping in Continuous Time

Tomas Bjork, Mariana Khapko () and Agatha Murgoci ()
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Mariana Khapko: University of Toronto
Agatha Murgoci: Ørsted

Chapter Chapter 24 in Time-Inconsistent Control Theory with Finance Applications, 2021, pp 255-278 from Springer

Abstract: Abstract We now turn to the case of time-inconsistent stopping problems in continuous time. We start by formulating the problem and formally defining the continuous-time equilibrium concept. In order to derive the relevant extension of variational inequalities for the time-inconsistent problem, we discretize (to some extent) the continuous-time problem, use our previously derived results in discrete time, and then take the limit. We present a sketch of a verification argument establishing the connection between the extended dynamic programming system and our continuous-time equilibrium concept. Finally, we exemplify the theory with two examples of an asset-selling problem with non-exponential discounting and the mean-variance objective.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprfcp:978-3-030-81843-2_24

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DOI: 10.1007/978-3-030-81843-2_24

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