Storage model with discontinuous holding cost

Michael I. Taksar

Stochastic Processes and their Applications, 1984, vol. 18, issue 2, 291-300

Abstract: We consider a Brownian storage system with stepwise holding cost and linear cost of disposal. There are no limits on the rate of disposal. We seek a policy which minimizes total discounted cost on an infinite interval. It is proved that the optimal policy is characterized by two points: one is a reflecting barrier, the second is a point of instantaneous displacement. When the process reaches the second point it must be instantly moved to the first point and kept below the first point with minimal efforts thereafter.

Date: 1984
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