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A Brownian optimal switching problem under incomplete information
Uppsala University, Disciplinary Domain of Science and Technology, Mathematics and Computer Science, Department of Mathematics.
(English)Manuscript (preprint) (Other academic)
Abstract [en]

In this paper we consider an incomplete information optimal switching problem in which the manager can only make use of 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 problem to a full information setting, 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 $0$.

National Category
Mathematical Analysis
Research subject
URN: urn:nbn:se:uu:diva-242556OAI: oai:DiVA.org:uu-242556DiVA: diva2:783913
Available from: 2015-01-27 Created: 2015-01-27 Last updated: 2015-03-17

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Olofsson, Marcus
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