Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103934
Authors: 
De Angelis, Tiziano
Ferrari, Giorgio
Moriarty, John
Year of Publication: 
2014
Series/Report no.: 
Working Papers, Center for Mathematical Economics 508
Abstract: 
We show that the equivalence between certain problems of singular stochastic control (SSC) and related questions of optimal stopping known for convex performance criteria (see, for example, Karatzas and Shreve (1984)) continues to hold in a non convex problem provided a related discretionary stopping time is introduced. Our problem is one of storage and consumption for electricity, a partially storable commodity with both positive and negative prices in some markets, and has similarities to the finite fuel monotone follower problem. In particular we consider a non convex infinite time horizon SSC problem whose state consists of an uncontrolled diffusion representing a real-valued commodity price, and a controlled increasing bounded process representing an inventory. We analyse the geometry of the action and inaction regions by characterising the related optimal stopping boundaries.
Subjects: 
finite-fuel singular stochastic control
optimal stopping
free-boundary
smooth-fit
Hamilton-Jacobi-Bellman equation
irreversible investment
JEL: 
C02
C61
E22
D92
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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