Optimal stopping
Example
Optimal selling of a stock with independent o§ers.
Assume that we haveξ 1 ,ξ 2 ,.. .,ξT independent random o§ers for a
stock. If we sell it in periodtthen we will getξt( 1 +r)T tat the Önal
periodT.What is the optimal strategy?
One can think about this type of problems as a speciÖc stochastic dynamic
programing problem. At every time period we have just one possible
action set: sell it or not. After we have sold the stock our set of strategies
is already empty. Our goal is to maximize the expected payout.
