On the smooth-fit property for one-dimensional optimal switching problem

Details On the smooth-fit property for one-dimensional optimal switching problem On the smooth-fit property for one-dimensional optimal switching problem

2004-10-12

arxiv.org/abs/math/0410285v1

Mathematics

Probability

Scientific paper

This paper studies the problem of optimal switching for one-dimensional diffusion, which may be regarded as sequential optimal stopping problem with changes of regimes. The resulting dynamic programming principle leads to a system of variational inequa-lities, and the state space is divided into continuation regions and switching regions. By means of viscosity solutions approach, we prove the smoot-fit $C^1$ property of the value functions.

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