Optimal expulsion and optimal confinement of a Brownian particle with a switching cost

We solve two stochastic control problems in which a player tries to minimize or maximize the exit time from an interval of a Brownian particle, by controlling its drift. The player can change from one drift to another but is subject to a switching cost. In each problem, the value function is written as the solution of a free boundary problem involving second order ordinary differential equations, in which the unknown boundaries are found by applying the principle of smooth fit. For both problems, we compute the value function, we exhibit the optimal strategy and we prove its generic uniqueness. (C) 2014 Elsevier B.V. All rights reserved.


Published in:
Stochastic Processes And Their Applications, 124, 12, 4050-4079
Year:
2014
Publisher:
Amsterdam, Elsevier Science Bv
ISSN:
0304-4149
Keywords:
Laboratories:




 Record created 2014-12-30, last modified 2018-09-13


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