The resolvent of a degenerate diffusion on the plane, with application to partially observed stochastic control (Q1201318)

The authors improve the results on the existence, uniqueness and optimal control of diffusion processes with partial observations presented in [\textit{V. E. Beneš}, \textit{I. Karatzas} and \textit{R. W. Rishel}, Applied stochastic analysis, Pap. Workshop, London/UK 1989, Stochastic Monogr. 5, 121-126 (1990; Zbl 0733.93080)]. It is proved that for any initial data \((Y_ 0,Z_ 0)\in R^ 2\) the SDE \(dY_ t=dW_ t\), \(dZ_ t=- \text{sgn}(Y_ tZ_ t)dW_ t\), where \(W\) is a one-dimensional Brownian motion, has a unique weak solution. An explicit representation for the resolvent of the process \((Y,Z)\) is given. The explicit solution of the above mentioned optimal control problem for a wide class of cost functions is presented.