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Stopping threshold in continuous blackjack

Question

A gambler and a dealer play a continuous version of blackjack using independent Unif(0,1)\text{Unif}(0,1) draws.

  • The gambler goes first, drawing numbers and adding them up. After each draw he may stop or draw again. If his total ever goes above 11, he busts and the dealer wins.
  • If the gambler stops with total a≤1a\le1, the dealer then keeps drawing uniforms and accumulating them. Should the dealer's running total land strictly between aa and 11, the dealer takes the game; should it overshoot 11 first, the gambler takes it.

The gambler uses a threshold rule: draw again while his total is below α\alpha and stop once it reaches α\alpha or more. The value of α\alpha that maximises his chance of winning satisfies eα=e+αx+yαe^{\alpha}=\frac{e+\alpha}{x+y\alpha} for some integers xx and yy, where ee is Euler's number. Compute x2+y2x^2+y^2.

Short answer

1313. Standing on ss loses with probability q(s)=(1−s)esq(s)=(1-s)e^{s}, since the dealer's partial sums fall below ss for nn draws with probability sn/n!s^n/n! and then need one draw into (s,1)(s,1). Drawing once more and then standing loses with probability s+∫s1q(t) dts+\int_s^1 q(t)\,dt. Setting these equal gives (3−2α)eα=e+α(3-2\alpha)e^\alpha=e+\alpha, so x=3x=3, y=−2y=-2 (and α≈0.571\alpha\approx0.571).

Adapted from QuantQuestions.io; question and answer rewritten by SelfMadeQuant.com.

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