A FINITE HORIZON OPTIMAL MULTIPLE SWITCHING PROBLEM
2009 (English)In: SIAM Journal of Control and Optimization, ISSN 0363-0129, E-ISSN 1095-7138, Vol. 48, no 4, 2751-2770 p.Article in journal (Refereed) Published
We consider the problem of optimal multiple switching in a finite horizon when the state of the system, including the switching costs, is a general adapted stochastic process. The problem is formulated as an extended impulse control problem and solved using probabilistic tools such as the Snell envelope of processes and reflected backward stochastic differential equations. Finally, when the state of the system is a Markov process, we show that the associated vector of value functions provides a viscosity solution to a system of variational inequalities with interconnected obstacles.
Place, publisher, year, edition, pages
2009. Vol. 48, no 4, 2751-2770 p.
real options, backward stochastic differential equations, Snell, envelope, stopping time, optimal switching, impulse control, variational inequalities, stochastic differential-equations, exit decisions, investments, entry, uncertainty, valuation
IdentifiersURN: urn:nbn:se:kth:diva-18797DOI: 10.1137/070697641ISI: 000270194500031ScopusID: 2-s2.0-84907817384OAI: oai:DiVA.org:kth-18797DiVA: diva2:336844
QC 201005252010-08-052010-08-052010-12-20Bibliographically approved