A solvable two-dimensional degenerate singular stochastic control problem with nonconvex costs

DOI10.1287/MOOR.2018.0934MaRDI QIDQ5219728zbMATH OpenOpenAlexWikidataFDO

Authors Tiziano De Angelis, Giorgio Ferrari, John Moriarty

Publication date 12 March 2020

Published in Mathematics of Operations Research (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1411.2428, http://eprints.whiterose.ac.uk/127276/1/DeAngelis%20Ferrari%20Moriarty-Revised%20Version%282017%29.pdf

zbMATH Keywords

electricity marketfinite-fuel singular stochastic controlfree boundaryHamilton-Jacobi-Bellman equationirreversible investmentoptimal stopping

Mathematics Subject Classification ID

Dynamic programming in optimal control and differential games (49L20) Stopping times; optimal stopping problems; gambling theory (60G40) Stochastic models in economics (91B70) Optimal stochastic control (93E20)

Abstract: In this paper we provide a complete theoretical analysis of a two-dimensional degenerate non convex singular stochastic control problem. The optimisation is motivated by a storage-consumption model in an electricity market, and features a stochastic real-valued spot price modelled by Brownian motion. We find analytical expressions for the value function, the optimal control and the boundaries of the action and inaction regions. The optimal policy is characterised in terms of two monotone and discontinuous repelling free boundaries, although part of one boundary is constant and the smooth fit condition holds there.

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Cited in

(10)

• Singular control of the drift of a Brownian system
• Storage model with discontinuous holding cost
• Optimal installation of solar panels with price impact: a solvable singular stochastic control problem
• A Singular Stochastic Control Problem with Interconnected Dynamics
• A nonconvex singular stochastic control problem and its related optimal stopping boundaries
• Multidimensional singular control and related Skorokhod problem: sufficient conditions for the characterization of optimal controls
• Zero-sum stopper versus singular-controller games with constrained control directions
• On singular control of reflected diffusions
• Data-driven rules for multidimensional reflection problems
• Stopper vs. singular controller games with degenerate diffusions

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