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Dynamic optimality in optimal variance stopping problems

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  • Buonaguidi, B.

Abstract

In an optimal variance stopping (O.V.S.) problem one seeks to determine the stopping time that maximizes the variance of an observed process. As originally shown by Pedersen (2011), the variance criterion leads to optimal stopping boundaries that depend explicitly on the initial point of the process. Then, following the lines of Pedersen and Peskir (2016), we introduce the concept of dynamic optimality for an O.V.S. problem, a type of optimality that disregards the starting point of the process. We examine when an O.V.S. problem admits a dynamically optimal stopping time and we illustrate our findings through several examples.

Suggested Citation

  • Buonaguidi, B., 2018. "Dynamic optimality in optimal variance stopping problems," Statistics & Probability Letters, Elsevier, vol. 141(C), pages 103-108.
    • Handle: RePEc:eee:stapro:v:141:y:2018:i:c:p:103-108
    DOI: 10.1016/j.spl.2018.05.030
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    References listed on IDEAS

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    1. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    2. Henry R. Richardson, 1989. "A Minimum Variance Result in Continuous Trading Portfolio Optimization," Management Science, INFORMS, vol. 35(9), pages 1045-1055, September.
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