An optimal threshold policy in applications of a two-state markov process

Research output: Chapter in Book/Report/Conference proceedingChapterpeer-review

Abstract

We consider a problem of optimal control of a two-state Markov process. The objective is to minimize a total discounted cost over an infinite horizon, when the capabilities of the control effort are different in the two states. The necessary optimality conditions allow studying state-costate dynamics over the regular and singular control regimes. By making use of the properties of the costate process we prove the optimality of a threshold policy and calculate the value of the threshold in some specific cases of the cost function, as well as in a case where a probabilistic constraint is imposed on the state variable. The distribution function of the state variable and the thresholds are expressed as a series of the modified Bessel functions.

Original languageEnglish
Title of host publicationInternational Series in Operations Research and Management Science
Pages203-219
Number of pages17
DOIs
StatePublished - 2014

Publication series

NameInternational Series in Operations Research and Management Science
Volume198

All Science Journal Classification (ASJC) codes

  • Software
  • Computer Science Applications
  • Strategy and Management
  • Management Science and Operations Research
  • Applied Mathematics

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