Groupe d’études et de recherche en analyse des décisions


An Optimal Control Problem With a Random Stopping Time

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This paper deals with a stochastic optimal control problem where the randomness is essentially concentrated in the stopping time terminating the process. If the stopping time is characterized by an intensity depending on the state and control variables one can reformulate the problem equivalently as an infinite horizon optimal control problem. Applying dynamic programming and minimum principle techniques to this associated deterministic control problem yields specific optimality conditions for the original stochastic control problem. It is also possible to characterize extremal steady states. The model is illustrated by an example related to the economics of technological innovation.

, 13 pages