Viscosity solutions for a system of PDEs and optimal switching

DOI10.1093/IMAMCI/DNW004;zbMATH Open1417.93154arXiv1204.1683MaRDI QIDQ4966985FDOQ4966985

Authors: Brahim El Asri, Imade Fakhouri 

Publication date: 2 July 2019

Published in: IMA Journal of Mathematical Control and Information (Search for Journal in Brave)

Abstract: In this paper, we study the $m$-states optimal switching problem in finite horizon, when the switching cost functions are arbitrary and can be positive or negative. This has an economic incentive in terms of central evaluation in cases where such organizations or state grants or financial assistance to power plants that promotes green energy in their production activity or what uses less polluting modes in their production. We show existence for optimal strategy via a verification theorem then we show existence and uniqueness of the value processes by using an approximation scheme. In the markovian framework we show that the value processes can be characterized in terms of deterministic continuous functions of the state of the process. Those latter functions are the unique viscosity solutions for a system of $m$ variational partial differential inequalities with inter-connected obstacles.

Full work available at URL: https://arxiv.org/abs/1204.1683

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zbMATH Keywords

backward stochastic differential equationsreal optionsstopping timesvariational inequalitiesswitchingSnell envelopeviscosity solution of PDEs

Mathematics Subject Classification ID

Stochastic partial differential equations (aspects of stochastic analysis) (60H15) Corporate finance (dividends, real options, etc.) (91G50) Viscosity solutions to Hamilton-Jacobi equations in optimal control and differential games (49L25) Stopping times; optimal stopping problems; gambling theory (60G40) Control/observation systems governed by partial differential equations (93C20)

Cited In (17)

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