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With or without replacement? Sampling uncertainty in Shepp's urn scheme

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  • Kristoffer Glover

Abstract

We introduce a variant of Shepp's classical urn problem in which the optimal stopper does not know whether sampling from the urn is done with or without replacement. By considering the problem's continuous-time analog, we provide bounds on the value function and in the case of a balanced urn (with an equal number of each ball type) an explicit solution is found. Surprisingly, the optimal strategy for the balanced urn is the same as in the classical urn problem.

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  • Kristoffer Glover, 2019. "With or without replacement? Sampling uncertainty in Shepp's urn scheme," Papers 1911.11971, arXiv.org.
    • Handle: RePEc:arx:papers:1911.11971
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    1. Marco Avellaneda & Michael Lipkin, 2003. "A market-induced mechanism for stock pinning," Quantitative Finance, Taylor & Francis Journals, vol. 3(6), pages 417-425.
    2. Jun Liu, 2004. "Losing Money on Arbitrage: Optimal Dynamic Portfolio Choice in Markets with Arbitrage Opportunities," Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 611-641.
    3. Brennan, Michael J & Schwartz, Eduardo S, 1990. "Arbitrage in Stock Index Futures," The Journal of Business, University of Chicago Press, vol. 63(1), pages 7-31, January.
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