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Title:American Options, Multi-armed Bandits, and Optimal Consumption Plans : A Unifying View PDF Logo
Authors:Bank, Peter
Föllmer, Hans
Issue Date:2003
Series/Report no.:Discussion papers of interdisciplinary research project 373 2003,46
Abstract: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.
Subjects:American options
Gittins index
multi-armed bandits
optimal consumption plans
optimal stopping
representation theorem
Persistent Identifier of the first edition:urn:nbn:de:kobv:11-10050819
Document Type:Working Paper
Appears in Collections:Discussion Papers, SFB 373, HU Berlin

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