A note on randomized Shepp's urn scheme
Journal
Discrete Mathematics
Journal Volume
309
Journal Issue
6
Pages
1749-1759
Date Issued
2009
Author(s)
Hung Y.-C.
Abstract
Shepp's urn model is a useful tool for analyzing the stopping-rule problems in economics and finance. In [R.W. Chen, A. Zame, C.T. Lin, H. Wu, A random version of Shepp's urn scheme, SIAM J. Discrete Math. 19 (1) (2005) 149-164], Chen et al. considered a random version of Shepp's urn scheme and showed that a simple drawing policy (called "the k in the hole policy") can asymptotically maximize the expected value of the game. By extending the work done by Chen et al., this note considers a more general urn scheme that is better suited to real-life price models in which the short-term value might not fluctuate. Further, "the k in the hole policy" is shown to be asymptotically optimal for this new urn scheme. © 2008 Elsevier B.V. All rights reserved.
Subjects
Optimal drawing policy; Shepp's urn scheme; Stopping time; The k in the hole policy
SDGs
Other Subjects
Asymptotic analysis; Asymptotically optimal; Expected values; Optimal drawing policy; Price models; Shepp's urn scheme; Stopping time; Term values; The k in the hole policy; Urn models; Optimization
Type
journal article