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Optimal stopping of Gauss-Markov bridges

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  • Abel Azze
  • Bernardo D'Auria
  • Eduardo Garc'ia-Portugu'es

Abstract

We solve the non-discounted, finite-horizon optimal stopping problem of a Gauss-Markov bridge by using a time-space transformation approach. The associated optimal stopping boundary is proved to be Lipschitz continuous on any closed interval that excludes the horizon, and it is characterized by the unique solution of an integral equation. A Picard iteration algorithm is discussed and implemented to exemplify the numerical computation and geometry of the optimal stopping boundary for some illustrative cases.

Suggested Citation

  • Abel Azze & Bernardo D'Auria & Eduardo Garc'ia-Portugu'es, 2022. "Optimal stopping of Gauss-Markov bridges," Papers 2211.05835, arXiv.org, revised Dec 2023.
    • Handle: RePEc:arx:papers:2211.05835
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    References listed on IDEAS

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