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Abstract
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We propose a direct solution method for optimal switching problems of one-dimensional diffusions. This method is direct in the sense that, based on a new mathematical characterization of the value functions, we shall directly find the value function and optimal switching policy. It is free from any guesswork and from proof of optimality of the conjectured solution. (This is required when one identifies a candidate of the value function through quasi-variational inequalities). By using a general theory of optimal stopping problems for one-dimensional diffusions, we characterize the value function as sets of the smallest linear majorants in their respective transformed spaces. Some examples will be shown for illustration purposes. This is a joint work with Savas Dayanik. |
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