Impulse Control of a Diffusion with a Change Point

Lokman A. Abbas-Turki, Ioannis Karatzas and Qinghua Li

Papers from arXiv.org

Abstract: This paper solves a Bayes sequential impulse control problem for a diffusion, whose drift has an unobservable parameter with a change point. The partially-observed problem is reformulated into one with full observations, via a change of probability measure which removes the drift. The optimal impulse controls can be expressed in terms of the solutions and the current values of a Markov process adapted to the observation filtration. We shall illustrate the application of our results using the Longstaff-Schwartz algorithm for multiple optimal stopping times in a geometric Brownian motion stock price model with drift uncertainty.

Date: 2014-04
New Economics Papers: this item is included in nep-cmp
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