Mathematics for Economists

Optimal stopping

Example

Selling stock with recalling prices.

One should solve the problem

Hn$( 1 +r)Tnmaxknξk

XT = HT=maxnTξn=( 1 +r)TTmaxnTξn,

Xn = max(Hn,E(Xn+ 1 j Fn))=

= max



( 1 +r)Tnmaxknξk,E(Xn+ 1 j Fn)



.