OPTIMAL CONTROL OF AN ENERGY STORAGE FACILITY UNDER A CHANGING ECONOMIC ENVIRONMENT AND PARTIAL INFORMATION

Anton A. Shardin () and Michaela Szölgyenyi ()
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Anton A. Shardin: Mathematical Institute, BTU Cottbus-Senftenberg, Platz der Deutschen Einheit 1, Cottbus 03044, Germany
Michaela Szölgyenyi: Institute of Statistics and Mathematics, Vienna University of Economics and Business, Welthandelsplatz 1, Vienna 1020, Austria

International Journal of Theoretical and Applied Finance (IJTAF), 2016, vol. 19, issue 04, 1-27

Abstract: In this paper, we consider an energy storage optimization problem in finite time in a model with partial information that allows for a changing economic environment. The state process consists of the storage level controlled by the storage manager and the energy price process, which is a diffusion process the drift of which is assumed to be unobservable. We apply filtering theory to find an alternative state process which is adapted to our observation filtration. For this alternative state process, we derive the associated Hamilton–Jacobi–Bellman equation and solve the optimization problem numerically. This results in a candidate for the optimal policy for which it is a priori not clear whether the controlled state process exists. Hence, we prove an existence and uniqueness result for a class of time-inhomogeneous stochastic differential equations with discontinuous drift and singular diffusion coefficient. Finally, we apply our result to prove admissibility of the candidate optimal control.

Keywords: Energy storage optimization; hidden Markov model; stochastic differential equation; discontinuous drift; degenerate diffusion (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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DOI: 10.1142/S0219024916500266

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