Stochastic optimal multi-modes switching with a viscosity solution approach

DOI10.1016/J.SPA.2012.09.007MaRDI QIDQ1933601zbMATH OpenOpenAlexFDO

Authors Brahim El Asri

Publication date 24 January 2013

Published in Stochastic Processes and their Applications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1102.1256

zbMATH Keywords

backward stochastic differential equationsreal optionsSnell envelopestopping timesswitchingvariational inequalitiesviscosity solution of PDEs

Mathematics Subject Classification ID

PDEs in connection with control and optimization (35Q93) Viscosity solutions to Hamilton-Jacobi equations in optimal control and differential games (49L25) Stopping times; optimal stopping problems; gambling theory (60G40) Applications of statistics to economics (62P20) Mathematical economics (91B99) Portfolio theory (91G10)

Abstract: We consider the problem of optimal multi-modes switching in finite horizon, when the state of the system, including the switching cost functions are arbitrary ($g_{ij}(t,x)geq0$). We show existence of the optimal strategy, and give when the optimal strategy is finite via a verification theorem. Finally, when the state of the system is a markov process, we show that the vector of value functions of the optimal problem is the unique viscosity solution to the system of $m$ variational partial differential inequalities with inter-connected obstacles.

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• Finite horizon stochastic optimal switching and impulse controls with a viscosity solution approach
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