Optimal Stopping with Random Maturity under Nonlinear Expectations

Abstract

We analyze an optimal stopping problem with random maturity under a nonlinear expectation with respect to a weakly compact set of mutually singular probabilities $\mathcal{P}$. The maturity is specified as the hitting time to level $0$ of some continuous index process at which the payoff process is even allowed to have a positive jump. When $\mathcal{P}$ is a collection of semimartingale measures, the optimal stopping problem can be viewed as a {\it discretionary} stopping problem for a player who can influence both drift and volatility of the dynamic of underlying stochastic flow.

Keywords: discretionary stopping, random maturity, controls in weak formulation, optimal stopping, nonlinear expectation, weak stability under pasting, Lipschitz continuous stopping time, dynamic programming principle, martingale approach