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First International Workshop in Sequential Methodologies (IWSM 2007)
July 22-25, 2007
Auburn University
Auburn, AL, U.S.A.

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On Chernoff's Continuity Correction in Optimal Stopping: Some Examples
by
Yi-Ching Yao
Institute of Statistical Science, Academia Sinica

Chernoff (1965) and Chernoff and Petkau (1976) introduced a second-order correction for computing the optimal stopping boundary of Brownian motion via a random walk approximation and the backward induction algorithm of discrete-time dynamic programming. This talk will briefly review the recent work of Lai, Yao and AitSahlia (2005) which provides further theoretical justification for the continuity-correction theory. Several examples will also be presented including the S_n/n problem, Gittins index and American put option.

Date received: April 18, 2007

Copyright © 2007 by the author(s). The author(s) of this document and the organizers of the conference have granted their consent to include this abstract in Atlas Conferences Inc. Document # cauc-77.