Article ID: | iaor20102613 |
Volume: | 35 |
Issue: | 1 |
Start Page Number: | 140 |
End Page Number: | 159 |
Publication Date: | Feb 2010 |
Journal: | Mathematics of Operations Research |
Authors: | Bayraktar Erhan, Egami Masahiko |
We explicitly solve the optimal switching problem for one-dimensional diffusions by directly using the dynamic programming principle and the excessive characterization of the value function. The shape of the value function and the smooth fit principle then can be proved using the properties of concave functions.