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2018 A Brownian optimal switching problem under incomplete information
Marcus Olofsson
Electron. Commun. Probab. 23: 1-12 (2018). DOI: 10.1214/18-ECP146

Abstract

In this paper we study an incomplete information optimal switching problem in which the manager only has access to noisy observations of the underlying Brownian motion $\{W_t\}_{t \geq 0}$. The manager can, at a fixed cost, switch between having the production facility open or closed and must find the optimal management strategy using only the noisy observations. Using the theory of linear stochastic filtering, we reduce the incomplete information problem to a full information problem, show that the value function is non-decreasing with the amount of information available, and that the value function of the incomplete information problem converges to the value function of the corresponding full information problem as the noise in the observed process tends to $0$. Our approach is deterministic and relies on the PDE-representation of the value function.

Citation

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Marcus Olofsson. "A Brownian optimal switching problem under incomplete information." Electron. Commun. Probab. 23 1 - 12, 2018. https://doi.org/10.1214/18-ECP146

Information

Received: 25 January 2017; Accepted: 20 June 2018; Published: 2018
First available in Project Euclid: 25 September 2018

zbMATH: 06964410
MathSciNet: MR3863923
Digital Object Identifier: 10.1214/18-ECP146

Subjects:
Primary: 35Q93, 49N30

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