Tuesday, May 8, 2018 - 4:00pm - 4:30pm
Hongwei Mei (University of Kansas)
We consider an optimal control problem for a stochastic differential equation containing a state-dependent regime switching, with a recursive cost functional. Due to the non-exponential discounting in the cost functional, the problem is time-inconsistent in general. Therefore, instead of finding a global optimal control (which is not possible), we look for a time-consistent (approximately) locally optimal equilibrium strategy. Such a strategy can be represented through the solution to a system of partial differential equations, called an equilibrium Hamilton-Jacob-Bellman (HJB, for short) equation which is constructed via a sequence of multi-person differential games.
93E20, 49N70, 60G07