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arxiv: 0707.0100 · v3 · submitted 2007-07-01 · 🧮 math.OC · math.PR

On the One-Dimensional Optimal Switching Problem

classification 🧮 math.OC math.PR
keywords functionone-dimensionaloptimalprincipleproblemswitchingvaluecharacterization
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We explicitly solve the optimal switching problem for one-dimensional diffusions by directly employing the dynamic programming principle and the excessive characterization of the value function. The shape of the value function and the smooth fit principle then can be proved using the properties of concave functions.

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