May 27, 2024

Hasan Rasay

Academic rank: Assistant professor
Education: Ph.D in Industrial Engineering
Phone: 38305005
Faculty: Faculty of Management Engineering


A Note on Markov Decision Process for Stock Option Model: a New Proof
Type Presentation
Markov decision process, Induction; Stock option, Dynamic Programming
Researchers Hasan Rasay، mohammad saber fallahnezhad، Ayat Ahmadi


Markov decision processes, also known as stochastic dynamic programs or stochastic control problems, are models for sequential decision making when outcomes are uncertain. In this paper, first, the stock option model is briefly introduced. Then, an optimality equation is obtained using Markov decision process. The optimality equation is a recursive equation and it is concluded that there is no simple rule for obtaining an explicit solution for the optimality equation. Anyway, this equation has some properties that yield the structure of the optimal policy. These properties are proved using induction approach. Finally application of this new proof is illustrated using two examples.