Impulse control of a diffusion with a change point

DOI10.1080/17442508.2014.956458MaRDI QIDQ5265791zbMATH OpenOpenAlexFDO

Authors Lokman A. Abbas-Turki, Ioannis Karatzas, Q. H. Li

Publication date 29 July 2015

Published in Stochastics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1404.1761

zbMATH Keywords

change pointdiffusionchange of measureimpulse controlLongstaff-Schwartz algorithmBayes sequential optimizationmultiple optimal stopping times

Mathematics Subject Classification ID

Signal detection and filtering (aspects of stochastic processes) (60G35) Diffusion processes (60J60) Viscosity solutions to Hamilton-Jacobi equations in optimal control and differential games (49L25) Impulsive optimal control problems (49N25) Stopping times; optimal stopping problems; gambling theory (60G40) Optimal stochastic control (93E20) Unilateral problems for parabolic systems and systems of variational inequalities with parabolic operators (35K87)

Abstract: This paper solves a Bayes sequential impulse control problem for a diffusion, whose drift has an unobservable parameter with a change point. The partially-observed problem is reformulated into one with full observations, via a change of probability measure which removes the drift. The optimal impulse controls can be expressed in terms of the solutions and the current values of a Markov process adapted to the observation filtration. We shall illustrate the application of our results using the Longstaff-Schwartz algorithm for multiple optimal stopping times in a geometric Brownian motion stock price model with drift uncertainty.

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Cited in

(2)

• Information, no-arbitrage and completeness for asset price models with a change point
• Optimal control under uncertainty and Bayesian parameters adjustments

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