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A Class of Recursive Optimal Stopping Problems with Applications to Stock Trading

Author

Listed:
  • Katia Colaneri

    (Department of Economics and Finance, University of Rome Tor Vergata, 00133 Roma, Italy)

  • Tiziano De Angelis

    (Department ESOMAS, University of Turin, 10134 Torino, Italy; Collegio Carlo Alberto, 10122 Torino, Italy)

Abstract

In this paper, we introduce and solve a class of optimal stopping problems of recursive type. In particular, the stopping payoff depends directly on the value function of the problem itself. In a multidimensional Markovian setting, we show that the problem is well posed in the sense that the value is indeed the unique solution to a fixed point problem in a suitable space of continuous functions, and an optimal stopping time exists. We then apply our class of problems to a model for stock trading in two different market venues, and we determine the optimal stopping rule in that case.

Suggested Citation

  • Katia Colaneri & Tiziano De Angelis, 2022. "A Class of Recursive Optimal Stopping Problems with Applications to Stock Trading," Mathematics of Operations Research, INFORMS, vol. 47(3), pages 1833-1861, August.
    • Handle: RePEc:inm:ormoor:v:47:y:2022:i:3:p:1833-1861
    DOI: 10.1287/moor.2021.1190
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