Solving optimal stopping problems via empirical dual optimization

Denis Belomestny

doi:10.1214/12-aap892

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arXiv · 1309.2125

Solving optimal stopping problems via empirical dual optimization

Denis Belomestny

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Abstract

In this paper we consider a method of solving optimal stopping problems in discrete and continuous time based on their dual representation. A novel and generic simulation-based optimization algorithm not involving nested simulations is proposed and studied. The algorithm involves the optimization of a genuinely penalized dual objective functional over a class of adapted martingales. We prove the convergence of the proposed algorithm and demonstrate its efficiency for optimal stopping problems arising in option pricing.

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Denis Belomestny. 2013-09-09. Solving optimal stopping problems via empirical dual optimization. https://doi.org/10.1214/12-aap892

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