A detection problem with a monotone observation rate

Erik Ekström and Alessandro Milazzo

Stochastic Processes and their Applications, 2024, vol. 172, issue C

Abstract: We study a quickest detection problem where the observation rate of the underlying process can be increased at any time for higher precision, but at an observation cost that grows linearly in the observation rate. This leads to a problem of combined control-and-stopping with incomplete information, with a two-dimensional sufficient statistic comprised of the current observation rate together with the conditional probability that disorder has already happened. The problem is shown to have a semi-explicit solution, where for some parameter values it is too costly to exert control at all, whereas for other parameter values the optimal strategy is to increase the observation rate in such a way that the sufficient statistic reflects at a certain boundary until the optimal stopping time. In both cases we fully characterise the optimal strategy with the help of appropriate smooth fit conditions.

Keywords: Quickest detection; Stochastic control; Optimal stopping; Incomplete information; Stochastic filtering (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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DOI: 10.1016/j.spa.2024.104337

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