Solution of Stochastic Optimal Control Problems and it's Financial Applications

Stochastic optimal control problems frequently occur in Economics and Finance. In stochastic optimal control problems with linear control, optimal strategy switches between two modes, a maximum and a minimum control mode The Hamilton-Jacobi-Bellman equation effectively breaks down into two differential equations. Which are linked at the threshold where it is optimal to switch. In this article we study problems that are linear in the control and illustrate A method to solve such problems Finally, we simulate a financial example.

Keywords:

Stochastic Optimal Control Problems , Hamilton-Jacobi-Bellman Equation , Financial Applications , Numerical Methods