Bandit problems model the trade-off between exploration and exploitation in various decision problems. We study two-armed bandit problems in continuous time, where the risky arm can have two types: High or Low; both types yield stochastic payoffs generated by a Lévy process. We show that the optimal strategy is a cut-off strategy and we provide an explicit expression for the cut-off and for the optimal payoff.
- Cut-off strategies
- Lévy processes
- Two-armed bandit
All Science Journal Classification (ASJC) codes
- Computer Science Applications
- Management Science and Operations Research