A Direct Method for Solving Optimal Switching Problems of One-Dimensional Diffusions

Details A Direct Method for Solving Optimal Switching Problems of One-Dimensional Diffusions A Direct Method for Solving Optimal Switching Problems of One-Dimensional Diffusions

2007-04-09

arxiv.org/abs/0704.0991v1

Mathematics

Optimization and Control

Scientific paper

In this paper, we propose a direct solution method for optimal switching problems of one-dimensional diffusions. This method is free from conjectures about the form of the value function and switching strategies, or does not require the proof of optimality through quasi-variational inequalities. The direct method uses a general theory of optimal stopping problems for one-dimensional diffusions and characterizes the value function as sets of the smallest linear majorants in their respective transformed spaces.

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