Optimal stopping via measure transformation: the Beibel-Lerche approach. (English) Zbl 1122.60044
In the present paper (which, according to the authors, is mainly tutorial) the Beibel-Lerche (B-L) approach for solving optimal stopping problems for stochastic processes in continuous time and with infinite horizon [see, e.g., M. Beibel and H. R. Lerche, Stat. Sin. 7, 93–108 (1997; Zbl 0895.60048)]) is explained. The authors use the B-L method to treat four different optimal stopping problems (two from sequential statistics and two from option pricing). In a final section, it is shown how the B-L approach is related to the multiplicative minimax duality which was recently proposed by F. Jamshidian [Stochastics 79, No. 1–2, 27–60 (2007; Zbl 1235.60039)] to deal with optimal stopping (exercise) for American and Bermudan options.
Reviewer: Klaus Schürger (Bonn)
Keywords:
optimal stopping; the B-L approach; repeated significance test; disruption problem; Russian option; lookback optionReferences:
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