Impulse control problem on finite horizon with execution delay

DOI10.1016/J.SPA.2008.07.007MaRDI QIDQ1016624zbMATH OpenOpenAlexFDO

Authors Benjamin Bruder, Huyên Pham

Publication date 6 May 2009

Published in Stochastic Processes and their Applications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/math/0703769

zbMATH Keywords

dynamic programmingcomparison principleviscosity solutionsdiffusion processesimpulse controlexecution delay

Mathematics Subject Classification ID

Dynamic programming in optimal control and differential games (49L20) Viscosity solutions to Hamilton-Jacobi equations in optimal control and differential games (49L25) Impulsive optimal control problems (49N25) Optimal stopping in statistics (62L15) Optimal stochastic control (93E20)

Abstract: We consider impulse control problems in finite horizon for diffusions with decision lag and execution delay. The new feature is that our general framework deals with the important case when several consecutive orders may be decided before the effective execution of the first one. This is motivated by financial applications in the trading of illiquid assets such as hedge funds. We show that the value functions for such control problems satisfy a suitable version of dynamic programming principle in finite dimension, which takes into account the past dependence of state process through the pending orders. The corresponding Bellman partial differential equations (PDE) system is derived, and exhibit some peculiarities on the coupled equations, domains and boundary conditions. We prove a unique characterization of the value functions to this nonstandard PDE system by means of viscosity solutions. We then provide an algorithm to find the value functions and the optimal control. This easily implementable algorithm involves backward and forward iterations on the domains and the value functions, which appear in turn as original arguments in the proofs for the boundary conditions and uniqueness results.

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Cited in

(28)

• Verification theorems for stochastic optimal control problems in Hilbert spaces by means of a generalized Dynkin formula
• Optimal exploitation of a resource with stochastic population dynamics and delayed renewal
• Stochastic optimal control with delay in the control. II: Verification theorem and optimal feedbacks
• Stochastic Optimal Control with Delay in the Control I: Solving the HJB Equation through Partial Smoothing
• A finite horizon optimal stochastic impulse control problem with a decision lag
• scientific article; zbMATH DE number 2065144 (Why is no real title available?)
• Solution examples of an impulse control problem
• Explicit investment rules with time-to-build and uncertainty
• Opaque bank assets and optimal equity capital
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• Optimal control of trading algorithms: a general impulse control approach
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