Dynamic programming for discrete-time finite-horizon optimal switching problems with negative switching costs. (English) Zbl 1348.93282

Martyr, R.

Adv. Appl. Probab. 48, No. 3, 832-847 (2016).

Summary: In this paper we study 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 optimal stopping theory for discrete-parameter stochastic processes, 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.

MSC:

93E20	Optimal stochastic control
60G40	Stopping times; optimal stopping problems; gambling theory
62P20	Applications of statistics to economics

Keywords:

optimal switching; stopping time; optimal stopping problem; Snell envelope