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arXiv · 1404.1761

Impulse Control of a Diffusion with a Change Point

Lokman A. Abbas-Turki·Ioannis Karatzas·Qinghua Li
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Abstract

This paper solves a Bayes sequential impulse control problem for a diffusion, whose drift has an unobservable parameter with a change point. The partially-observed problem is reformulated into one with full observations, via a change of probability measure which removes the drift. The optimal impulse controls can be expressed in terms of the solutions and the current values of a Markov process adapted to the observation filtration. We shall illustrate the application of our results using the Longstaff-Schwartz algorithm for multiple optimal stopping times in a geometric Brownian motion stock price model with drift uncertainty.

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Lokman A. Abbas-Turki, Ioannis Karatzas, Qinghua Li. 2014-04-07. Impulse Control of a Diffusion with a Change Point. https://arxiv.org/abs/1404.1761

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