Optimal Multi-Modes Switching Problem in Infinite Horizon

Details Optimal Multi-Modes Switching Problem in Infinite Horizon Optimal Multi-Modes Switching Problem in Infinite Horizon

2009-04-04

arxiv.org/abs/0904.0707v1

Mathematics

Probability

Scientific paper

This paper studies the problem of the deterministic version of the Verification Theorem for the optimal m-states switching in infinite horizon under Markovian framework with arbitrary switching cost functions. The problem is formulated as an extended impulse control problem and solved by means of probabilistic tools such as the Snell envelop of processes and reflected backward stochastic differential equations. A viscosity solutions approach is employed to carry out a finne analysis on the associated system of m variational inequalities with inter-connected obstacles. We show that the vector of value functions of the optimal problem is the unique viscosity solution to the system. This problem is in relation with the valuation of firms in a financial market.

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