Dynamic Programming for Discrete-Time Finite Horizon Optimal Switching Problems with Negative Switching Costs

Randall Errol Martyr

Research output: Book/ReportCommissioned report

Abstract

This paper studies a discrete-time optimal switching problem on a finite horizon. The underlying model has a running reward, terminal reward and signed (positive and negative) switching costs. Using the martingale approach to optimal stopping problems, we extend a well known explicit dynamic programming method for computing the value function and the optimal strategy to the case of signed switching costs.
Original languageEnglish
PublisherUniversity of Manchester
Number of pages16
Publication statusPublished - 2014

Publication series

NameProbability and Statistics Research Reports

Keywords

  • optimal switching, real options, stopping times, optimal stopping problems, Snell envelope

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