Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/111069
Authors: 
De Angelis, Tiziano
Ferrari, Giorgio
Moriarty, John
Year of Publication: 
2014
Series/Report no.: 
Working Papers, Center for Mathematical Economics 531
Abstract: 
In this paper we provide a complete theoretical analysis of a two-dimensional degenerate non convex singular stochastic control problem. The optimisation is motivated by a storage-consumption model in an electricity market, and features a stochastic real-valued spot price modelled by Brownian motion. We find analytical expressions for the value function, the optimal control and the boundaries of the action and inaction regions. The optimal policy is characterised in terms of two monotone and discontinuous repelling free boundaries, although part of one boundary is constant and and the smooth fit condition holds there.
Subjects: 
finite-fuel singular stochastic control
optimal stopping
free boundary
Hamilton-Jacobi-Bellmann equation
irreversible investment
electricity market
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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