A Brownian optimal switching problem under incomplete information (Q1990035)

In this paper the author studied an incomplete information optimal switching problem in which the manager only has access to noisy observations of the underlying Brownian motion \(\left\{W_t \right\}_{t\geq 0}\). The manager can, at a fixed cost, switch between having the production facility open or closed and must find the optimal management strategy using only the noisy observations. By using the theory of linear stochastic filtering, he reduced the incomplete information problem to a full information problem and showed that the value function is non-decreasing with the amount of information available, and that the value function of the incomplete information problem converges to the value function of the corresponding full information problem as the noise in the observed process tends to \(0\). His approach is deterministic and relies on the PDE-representation of the value function.