Connections between optimal stopping and singular stochastic control
We 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.
Volume (Year): 77 (1998)
Issue (Month): 2 (September)
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- Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 707-727.