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arXiv · 1212.2140

Optimal stopping under adverse nonlinear expectation and related games

Marcel Nutz·Jianfeng Zhang
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Abstract

We study the existence of optimal actions in a zero-sum game $\inf_τ\sup_PE^P[X_τ]$ between a stopper and a controller choosing a probability measure. This includes the optimal stopping problem $\inf_τ\mathcal{E}(X_τ)$ for a class of sublinear expectations $\mathcal{E}(\cdot)$ such as the $G$-expectation. We show that the game has a value. Moreover, exploiting the theory of sublinear expectations, we define a nonlinear Snell envelope $Y$ and prove that the first hitting time $\inf\{t:Y_t=X_t\}$ is an optimal stopping time. The existence of a saddle point is shown under a compactness condition. Finally, the results are applied to the subhedging of American options under volatility uncertainty.

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Marcel Nutz, Jianfeng Zhang. 2015-09-09. Optimal stopping under adverse nonlinear expectation and related games. https://doi.org/10.1214/14-aap1054

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