A Full Balance Sheet Two-modes Optimal Switching problem
(English)In: Mathematical Methods of Operations Research, ISSN 1432-2994, E-ISSN 1432-5217Article in journal (Other academic) Submitted
We formulate and solve a finite horizon full balance sheet two-modes optimal switching problem related to trade-off strategies between expected profit and cost yields. The optimal switching problem is formulated in terms of a system of Snell envelopes for the profit and cost yields which act as obstacles to each other. We prove existence of a continuous minimal solution of this system using an approximation scheme and fully characterize the optimal switching strategy.
real options, backward SDEs, Snell envelope, stopping time, optimal switching, impulse control, balance sheet, merger and acquisition
Probability Theory and Statistics
IdentifiersURN: urn:nbn:se:kth:diva-42154OAI: oai:DiVA.org:kth-42154DiVA: diva2:445869
QS 2011 QS 201203262011-10-052011-10-052013-04-16Bibliographically approved