On the Smooth-Fit Property for One-Dimensional Optimal Switching Problem

DOI10.1007/978-3-540-71189-6_8MaRDI QIDQ5423751zbMATHOpenAlexFDO

Authors Huyên Pham

Publication date 31 October 2007

Published in Lecture Notes in Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/math/0410285

zbMATH Keywords

system of variational inequalitiessmooth-fit principle

Mathematics Subject Classification ID

Viscosity solutions to Hamilton-Jacobi equations in optimal control and differential games (49L25) Stopping times; optimal stopping problems; gambling theory (60G40) Applications of stochastic analysis (to PDEs, etc.) (60H30)

Abstract: This paper studies the problem of optimal switching for one-dimensional diffusion, which may be regarded as sequential optimal stopping problem with changes of regimes. The resulting dynamic programming principle leads to a system of variational inequa-lities, and the state space is divided into continuation regions and switching regions. By means of viscosity solutions approach, we prove the smoot-fit $C^1$ property of the value functions.

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• The explicit solution to a sequential switching problem with non-smooth data
• A two-dimensional control problem arising from dynamic contracting theory
• Optimal switching under a hybrid diffusion model and applications to stock trading
• Optimal Switching over Multiple Regimes
• A direct solution method for pricing options involving the maximum process
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