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Optimal Stopping with Dynamic Variational Preferences

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  • Engelage, Daniel

Abstract

We consider optimal stopping problems in uncertain environments for an agent assessing utility by virtue of dynamic variational preferences or, equivalently, assessing risk by dynamic convex risk measures. The solution is achieved by generalizing the approach in terms of multiple priors introducing the concept of variational supermartingales and an accompanying theory. To illustrate results, we consider prominent examples: dynamic entropic risk measures and a dynamic version of generalized average value at risk.

Suggested Citation

  • Engelage, Daniel, 2009. "Optimal Stopping with Dynamic Variational Preferences," Bonn Econ Discussion Papers 20/2009, University of Bonn, Bonn Graduate School of Economics (BGSE).
    • Handle: RePEc:zbw:bonedp:202009
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    References listed on IDEAS

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    1. Cheridito, Patrick & Stadje, Mitja, 2009. "Time-inconsistency of VaR and time-consistent alternatives," Finance Research Letters, Elsevier, vol. 6(1), pages 40-46, March.
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    6. Hans Föllmer & Alexander Schied, 2002. "Convex measures of risk and trading constraints," Finance and Stochastics, Springer, vol. 6(4), pages 429-447.
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    More about this item

    Keywords

    Optimal Stopping; Uncertainty; Dynamic Variational Preferences; Dynamic Convex Risk Measures; Dynamic Penalty; Time-Consistency; Entropic Risk; Average Value at Risk;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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