Optimal stopping of a Hilbert space valued diffusion

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• Dr Tiziano De Angelis, (University of Manchester)
• Wednesday 24 October 2012, 16:00-17:00
• MR14, Centre for Mathematical Sciences.

If you have a question about this talk, please contact Kevin Crooks.

A finite horizon optimal stopping problem for an infinite dimensional diffusion X is analyzed by means of variational techniques. The diffusion is driven by a SDE on a Hilbert space H with a non-linear diffusion coefficient \sigma(X) and a generic unbounded operator A in the drift term. When the gain function \Psi is time-dependent and fulfills mild regularity assumptions, the value function V of the optimal stopping problem is shown to solve an infinite-dimensional, parabolic, degenerate variational inequality on an unbounded domain. Once the coefficient\sigma(X) is specified, the solution of the variational problem is found in a suitable Banach space B fully characterized in terms of a Gaussian measure \mu. This work provides the infinite-dimensional counterpart, in the spirit of Bensoussan and Lions [1], of well-known results on optimal stopping theory and variational inequalities in R^n. These results may be useful in several fields, as in mathematical finance when pricing American options in the HJM model.

This talk is part of the Cambridge Analysts' Knowledge Exchange (C.A.K.E.) series.

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