Using a geometric Brownian motion to control a Brownian motion and vice versa

DOI10.1016/S0304-4149(97)00040-9MaRDI QIDQ1275935zbMATH OpenOpenAlexFDO

Authors Mario Lefebvre

Publication date 14 January 1999

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

Full work available at URL https://doi.org/10.1016/s0304-4149(97)00040-9

zbMATH Keywords

geometric Brownian motionhoming problemstochastic optimal control

Mathematics Subject Classification ID

Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10)

Review text

Consider a one-dimensional controlled process \(x(t)\) governed by the equation \[ dx(t)=a(\xi (t))dt+b(\xi (t))u(\xi (t))dt+[N(\xi (t))]^{1/2}dW(t), \] where \(\xi (t):=(x(t),t)\). The aim of the homing control problem is to minimize the expectation of a functional of the form \[ J(x)=\int _0^{T(x)} [\tfrac {1}{2}q(\xi (t))u^2(\xi (t))+\lambda ]dt, \] where \(q\geq 0,\;\lambda \) is real and \(T(x)\) denotes the exit time from an interval \((A,B)\) for a solution starting from \(x=x(0)\in (A,B)\). In the particular case \(a=0,\;b=N=1\) and \(q(\xi (t))=x^2(t)\) the optimal control is found by means of the mathematical expectation of a geometric Brownian motion while the optimal process is shown to be a Bessel process. Conversely, if the uncontrolled process is a geometric Brownian motion, then the optimal control is found by means of an expectation of a Brownian motion.

Recommendations

• A homing problem for diffusion processes with control-dependent variance.
• Optimal and suboptimal control of a standard Brownian motion
• Exact solutions to two-dimensional homing problems

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Cited in

(5)

• General LQG homing problems in one dimension
• Explicit solution for a vector-valued LQG homing problem
• scientific article; zbMATH DE number 1254187 (Why is no real title available?)
• Maximizing the mean exit time of a Brownian motion from an interval
• Optimal proportional reinsurance model with transaction costs

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