Resource title

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

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Resource description

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.

Resource author

Peter Bank, Hans Föllmer

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/22260

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Adapt according to the presented license agreement and reference the original author.