Stochastic optimal multi-modes switching with a viscosity solution approach

Brahim El Asri

Stochastic Processes and their Applications, 2013, vol. 123, issue 2, 579-602

Abstract: We consider the problem of optimal multi-modes switching in finite horizon, when the state of the system, including the switching cost functions are arbitrary (gij(t,x)≥0). We show existence of the optimal strategy, via a verification theorem. Finally, when the state of the system is a Markov process, we show that the vector of value functions of the optimal problem is the unique viscosity solution to the system of m variational partial differential inequalities with inter-connected obstacles.

Keywords: Real options; Backward stochastic differential equations; Snell envelope; Stopping times; Switching; Viscosity solution of PDEs; Variational inequalities (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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DOI: 10.1016/j.spa.2012.09.007

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