On an Effective Solution of the Optimal Stopping Problem for Random Walks

Abstract

We find a solution of the optimal stopping problem for the case when a reward function is an integer function of a random walk on an infinite time interval. It is shown that an optimal stopping time is a first crossing time through a level defined as the largest root of Appell's polynomial associated with the maximum of the random walk. It is also shown that a value function of the optimal stopping problem on the finite interval {0, 1, ? , T} converges with an exponential rate as T approaches infinity to the limit under the assumption that jumps of the random walk are exponentially bounded.optimal stopping; random walk; rate of convergence; Appell polynomials