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Title:On the smoothness of value functions PDF Logo
Authors:Strulovici, Bruno
Szydlowski, Martin
Issue Date:2012
Series/Report no.:Discussion Paper, Center for Mathematical Studies in Economics and Management Science 1542
Abstract:We prove that under standard Lipschitz and growth conditions, the value function of all optimal control problems for one-dimensional diffusions is twice differentiable, as long as the control space is compact and the volatility is uniformly bounded below, away from zero. Under similar conditions, the value function of any optimal stopping problem is differentiable.
Subjects:Stochastic Control
Super Contact
Smooth Pasting
Value Function
JEL:C61
C62
Document Type:Working Paper
Appears in Collections:Discussion Papers, Kellogg School of Management, Northwestern University

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