A simulation approach to optimal stopping under partial information

STOCHASTIC PROCESSES AND THEIR APPLICATIONS

卷:119

Article

Ludkovski, Michael

关键词: Optimal stopping;    Nonlinear filtering;    Particle filters;    Snell envelope;    Regression Monte Carlo;   

DOI  :  10.1016/j.spa.2009.09.007

来源: Elsevier

【 摘 要 】

We study the numerical solution of nonlinear partially observed optimal stopping problems. The system state is taken to be a multi-dimensional diffusion and drives the drift of the observation process, which is another multi-dimensional diffusion with correlated noise. Such models where the controller is not fully aware of her environment are of interest in applied probability and financial mathematics. We propose a new approximate numerical algorithm based on the particle filtering and regression Monte Carlo methods. The algorithm maintains a continuous state space and yields art integrated approach to the filtering and control sub-problems. Our approach is entirely simulation-based and therefore allows for a robust implementation with respect to model specification. We carry out the error analysis of our scheme and illustrate with several computational examples. An extension to discretely observed stochastic volatility models is also considered. (C) 2009 Elsevier B.V. All rights reserved.

【 授权许可】

Free