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New Approach to Stochastic Optimal Control

Author

Listed:
  • R. Josa-Fombellida

    (Universidad de Valladolid)

  • J. P. Rincón-Zapatero

    (Universidad Carlos III de Madrid)

Abstract

This paper provides new insights into the solution of optimal stochastic control problems by means of a system of partial differential equations, which characterize directly the optimal control. This new system is obtained by the application of the stochastic maximum principle at every initial condition, assuming that the optimal controls are smooth enough. The type of problems considered are those where the diffusion coefficient is independent of the control variables, which are supposed to be interior to the control region.

Suggested Citation

  • R. Josa-Fombellida & J. P. Rincón-Zapatero, 2007. "New Approach to Stochastic Optimal Control," Journal of Optimization Theory and Applications, Springer, vol. 135(1), pages 163-177, October.
    • Handle: RePEc:spr:joptap:v:135:y:2007:i:1:d:10.1007_s10957-007-9262-5
    DOI: 10.1007/s10957-007-9262-5
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    References listed on IDEAS

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    1. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
    2. Rincon-Zapatero, J. P., 2004. "Characterization of Markovian equilibria in a class of differential games," Journal of Economic Dynamics and Control, Elsevier, vol. 28(7), pages 1243-1266, April.
    3. Josa-Fombellida, Ricardo & Rincón-Zapatero, Juan Pablo, 2005. "New approach to stochastic optimal control and applications to economics," UC3M Working papers. Economics we053219, Universidad Carlos III de Madrid. Departamento de Economía.
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