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On the One-Dimensional Optimal Switching Problem
Erhan Bayraktar,Masahiko Egami +1 more
TLDR
The optimal switching problem for one-dimensional diffusions is solved by directly using the dynamic programming principle and the excessive characterization of the value function using the properties of concave functions.Abstract:
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.read more
Citations
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Pricing Asset Scheduling Flexibility using Optimal Switching
René Carmona,Michael Ludkovski +1 more
TL;DR: In this paper, a new approach based on a stochastic impulse control framework is proposed for operational flexibility of energy assets, which reduces to a cascade of optimal stopping problems and directly demonstrates that the optimal dispatch policies can be described with the aid of switching boundaries, similar to the free boundaries of standard American options.
Journal ArticleDOI
Optimal Multi-Modes Switching Problem in Infinite Horizon
TL;DR: In this article, the authors studied 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.
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Pricing Energy Derivatives by Linear Programming: Tolling Agreement Contracts
Valeriy Ryabchenko,Stan Uryasev +1 more
TL;DR: It is proved that the optimal operating strategy for a power plant can be expressed through optimal exercise boundaries (similar to the exercise boundaries for American options) as a byproduct of the pricing algorithm.
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A Neural Network Approach to High-Dimensional Optimal Switching Problems with Jumps in Energy Markets
TL;DR: A backward-in-time machine learning algorithm that uses a sequence of neural networks to solve optimal switching problems in energy production, where electricity and fossil fuel prices are subject to stochastic jumps is developed.
On the closed-form expected NPVs of double barrier strategies for regular diffusions
TL;DR: In this paper , the expected net present values (NPVs) of double barrier strategies for regular diversification on the real line without solving linear equations are provided. And a condition ensuring the existence of an optimal (upper) barrier level is presented.
References
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Journal ArticleDOI
Evaluating Natural Resource Investments
TL;DR: In this article, it is shown that continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing, managing, and abandoning them.
Journal ArticleDOI
Entry and Exit Decisions under Uncertainty
TL;DR: In this paper, a firm's entry and exit decisions when the output price follows a random walk are examined, where an idle firm and an active firm are viewed as assets that are call options on each other.
Book
Handbook of Brownian Motion - Facts and Formulae
Andrei N. Borodin,Paavo Salminen +1 more
TL;DR: Theoretically, Brownian motion with drift is a Markov process as mentioned in this paper, which is a generalization of the Bessel process of order 1/2 and the Ornstein-Uhlenbeck process.
Book
Diffusion Processes and their Sample Paths
Kiyosi Itô,Henry P. McKean +1 more
TL;DR: In this article, the authors consider the problem of approximating the Brownian motion by a random walk with respect to the de Moivre-laplace limit theorem and show that it is NP-hard.