Optimal stopping under adverse nonlinear expectation and related games

Abstract

We study the existence of optimal actions in a zero-sum game $\inf_{\tau}\sup_{P}E^{P}[X_{\tau}]$ between a stopper and a controller choosing a probability measure. This includes the optimal stopping problem $\inf_{\tau}\mathcal{E}(X_{\tau})$ for a class of sublinear expectations $\mathcal{E}(\cdot)$ such as the $G$-expectation. We show that the game has a value. Moreover, exploiting the theory of sublinear expectations, we define a nonlinear Snell envelope $Y$ and prove that the first hitting time $\inf\{t:Y_{t}=X_{t}\}$ is an optimal stopping time. The existence of a saddle point is shown under a compactness condition. Finally, the results are applied to the subhedging of American options under volatility uncertainty.