An elementary approach to optimal stopping problems for AR(1) sequences

Taylor and Francis
Publication Type:
Journal Article
Sequential Analysis, 2011, 30 (1), pp. 79 - 93
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Optimal stopping problems form a class of stochastic optimization problems that has a wide range of applications in sequential statistics and mathematical finance. Here we consider a general optimal stopping problem with discounting for autoregressive processes. Our strategy for a solution consists of two steps: First we give elementary conditions to ensure that an optimal stopping time is of threshold type. Then the resulting one-dimensional problem of finding the optimal threshold is to be solved explicitly. The second step is carried out for the case of exponentially distributed innovations.
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