Connections between optimal stopping and singular stochastic control
AbstractWe consider an optimal control problem for an Itô diffusion and a related stopping problem. Their value functions satisfy (d/dx)V=u and an optimal control defines an optimal stopping time. Conversely, we construct an optimal control from optimal stopping times, find a representation of V as an integral of u and describe the optimal state as a reflected process.
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Bibliographic InfoArticle provided by Elsevier in its journal Stochastic Processes and their Applications.
Volume (Year): 77 (1998)
Issue (Month): 2 (September)
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Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/505572/description#description
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- McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
- Xin Guo & Pascal Tomecek, 2008. "Solving Singular Control from Optimal Switching," Asia-Pacific Financial Markets, Springer, vol. 15(1), pages 25-45, March.
- Joachim Gahungu and Yves Smeers, 2012. "A Real Options Model for Electricity Capacity Expansion," RSCAS Working Papers 2012/08, European University Institute.
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