On an Optimal Stopping Problem of an Insider

Abstract

We consider the optimal problem $\sup_{\tau\in\mathcal{T}_{\eps,T}}\mathbb{E}\left[\sum_{i=1}^n \phi_{(\tau-\eps^i)^ }^i\right]$, where $T>0$ is a fixed time horizon, $(\phi_t^i)_{0\leq t\leq T}$ is progressively measurable with respect to the Brownian filtration, $\eps^i\in[0,T]$ is a constant, $i=1,\dotso,n$, and $\mathcal{T}_{\eps,T}$ is the set of stopping times that lie between a constant $\eps\in[0,T]$ and $T$. We solve this problem by conditioning and then using the theory of reflected backward stochastic differential equations (RBSDEs). As a corollary, we provide a solution to the optimal stopping problem $\sup_{\tau\in\mathcal{T}_{0,T}}\mathbb{E}B_{(\tau-\eps)^ }$ recently posed by Shiryaev at the International Conference on Advanced Stochastic Optimization Problems organized by the Steklov Institute of Mathematics in September 2012. We also provide its asymptotic order as $\eps\searrow 0$.