A two-mode mean-field optimal switching problem for the full balance sheet

DOI10.1155/2014/159519MaRDI QIDQ462408zbMATH OpenOpenAlexWikidataFDO

Authors Boualem Djehiche, Ali Hamdi

Publication date 20 October 2014

Published in International Journal of Stochastic Analysis (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1411.5852

zbMATH Keywords

large number of production linesoptimal expected yieldsswitchingtwo-mode optimal switching problem of mean-field type

Mathematics Subject Classification ID

Production models (90B30) Control/observation systems governed by functional relations other than differential equations (such as hybrid and switching systems) (93C30) Optimal stochastic control (93E20)

Abstract: We formulate and solve a finite horizon full balance sheet two-modes optimal switching problem related to trade-off strategies between expected profit and cost yields. Given the current mode, this model allows for either a switch to the other mode or termination of the project, and this happens for both sides of the balance sheet. A novelty in this model is that the related obstacles are nonlinear in the underlying yields, whereas, they are linear in the standard optimal switching problem. The optimal switching problem is formulated in terms of a system of Snell envelopes for the profit and cost yields which act as obstacles to each other. We prove existence of a continuous minimal solution of this system using an approximation scheme and fully characterize the optimal switching strategy.

Review text

Summary: We consider the problem of switching a large number of production lines between two modes, high production and low production. The switching is based on the optimal expected profit and cost yields of the respective production lines and considers both sides of the balance sheet. Furthermore, the production lines are all assumed to be interconnected through a coupling term, which is the average of all optimal expected yields. Intuitively, this means that each individual production line is compared to the average of all its peers which acts as a benchmark. Due to the complexity of the problem, we consider the aggregated optimal expected yields, where the coupling term is approximated with the mean of the optimal expected yields. This turns the problem into a two-mode optimal switching problem of mean-field type, which can be described by a system of Snell envelopes where the obstacles are interconnected and nonlinear. The main result of the paper is a proof of a continuous minimal solution to the system of Snell envelopes, as well as the full characterization of the optimal switching strategy.

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Cited in

(5)

• A balance sheet optimal multi-modes switching problem
• A full balance sheet two-mode optimal switching problem
• A two-mode mean-field optimal switching problem for the full balance sheet
• Mean-field optimal multi-modes switching problem: a balance sheet
• The mean field optimal switching problem: variational inequality approach

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