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American Options, Multi-armed Bandits, and Optimal Consumption Plans: A Unifying View

Please always quote using this URN:urn:nbn:de:0296-matheon-945
  • In this survey, we show that various stochastic optimization problems arising in option theory, in dynamical allocation problems, and in the microeconomic theory of intertemporal consumption choice can all be reduced to the same problem of representing a given stochastic process in terms of running maxima of another process. We describe recent results of Bank and El Karoui (2002) on the general stochastic representation problem, derive results in closed form for Lévy processes and diffusions, present an algorithm for explicit computations, and discuss some applications.

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Metadaten
Author:Peter Bank, Hans Föllmer
URN:urn:nbn:de:0296-matheon-945
Referee:Hans Föllmer
Document Type:Preprint, Research Center Matheon
Language:English
Date of first Publication:2004/02/20
Release Date:2004/02/18
Preprint Number:91
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