The solution of discretionary stopping problems with applications to the optimal timing of investment decisions

Timothy C. Johnson

Papers from arXiv.org

Abstract: We present a methodology for obtaining explicit solutions to infinite time horizon optimal stopping problems involving general, one-dimensional, It\^o diffusions, payoff functions that need not be smooth and state-dependent discounting. This is done within a framework based on dynamic programming techniques employing variational inequalities and links to the probabilistic approaches employing $r$-excessive functions and martingale theory. The aim of this paper is to facilitate the the solution of a wide variety of problems, particularly in finance or economics.

Date: 2012-10
New Economics Papers: this item is included in nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1210.2617

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