A Collocation Method for the Sequential Testing of a Gamma Process

Bruno Buonaguidi, Pietro Muliere
2015 Statistica sinica  
We study the Bayesian problem of sequential testing of two simple hypotheses about the parameter α > 0 of a Lévy gamma process. The initial optimal stopping problem is reduced to a free-boundary problem, where at the unknown boundary points, separating the stopping and continuation set, the principles of the smooth and/or continuous fit hold and the unknown value function satisfies on the continuation set a linear integro-differential equation. Due to the form of the Lévy measure of a gamma
more » ... ess, determining the solution of this equation and the boundaries is not an easy task. Hence, instead of solving the problem analytically, we use a collocation technique: the value function is replaced by a truncated series of polynomials with unknown coefficients, that, together with the boundary points, are determined by forcing the series to satisfy the boundary conditions and, at fixed points, the integro-differential equation. The proposed numerical technique is finally employed in well understood problems to assess its efficiency.
doi:10.5705/ss.2013.155 fatcat:x3xyjxv54vfvvaolew2zwxi27q