Optional stopping theorem

This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. Find sources: "Optional stopping theorem" – news · newspapers · books · scholar · JSTOR (February 2012) (Learn how and when to remove this message)

In probability theory, the optional stopping theorem (or sometimes Doob's optional sampling theorem, for American probabilist Joseph Doob) says that, under certain conditions, the expected value of a martingale at a stopping time is equal to its initial expected value. Since martingales can be used to model the wealth of a gambler participating in a fair game, the optional stopping theorem says that, on average, nothing can be gained by stopping play based on the information obtainable so far (i.e., without looking into the future). Certain conditions are necessary for this result to hold true. In particular, the theorem applies to doubling strategies.

The optional stopping theorem is an important tool of mathematical finance in the context of the fundamental theorem of asset pricing.