A finite horizon optimal switching problem with memory and application to controlled SDDEs

Magnus Perninge ()
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Magnus Perninge: Linnaeus University

Mathematical Methods of Operations Research, 2020, vol. 91, issue 3, No 4, 465-500

Abstract: Abstract We consider an optimal switching problem where the terminal reward depends on the entire control trajectory. We show existence of an optimal control by applying a probabilistic technique based on the concept of Snell envelopes. We then apply this result to solve an impulse control problem for stochastic delay differential equations driven by a Brownian motion and an independent compound Poisson process. Furthermore, we show that the studied problem arises naturally when maximizing the revenue from operation of a group of hydro-power plants with hydrological coupling.

Keywords: Impulse control; Optimal switching; Real options; Stopping time; Snell envelope; SDDEs (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s00186-019-00699-1

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