Optimal decision under ambiguity for diffusion processes
Journal article, 2013

In this paper we consider stochastic optimization problems for an ambiguity averse decision maker who is uncertain about the parameters of the underlying process. In a first part we consider problems of optimal stopping under drift ambiguity for one-dimensional diffusion processes. Analogously to the case of ordinary optimal stopping problems for one-dimensional Brownian motions we reduce the problem to the geometric problem of finding the smallest majorant of the reward function in a two-parameter function space. In a second part we solve optimal stopping problems when the underlying process may crash down. These problems are reduced to one optimal stopping problem and one Dynkin game. Examples are discussed. © 2013 Springer-Verlag Berlin Heidelberg.

Optimal stopping


Dynkin games

Ambiguity aversion

Diffusion processes


Sören Christensen

Mathematical Methods of Operations Research

1432-2994 (ISSN) 1432-5217 (eISSN)

Vol. 77 2 207-226

Subject Categories

Economics and Business

Probability Theory and Statistics



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