Optimal Stopping of One-Dimensional Diffusions



In this paper we consider an optimal stopping problem for a time-homogeneous, onedimensional, regular diffusion. An essential tool in our approach is the MARTIN boundary theory. It is possible to determine explicitly the representing measure of a given β-excessive function. It is seen that this correspondence may be used to construct optimal stopping rules. In some specific cases, as demonstrated in the paper, the solution is reached directly and with ease. The so called condition of “smooth pasting” is seen to be a simple consequence of our results.