Approximations And Computational Methods For Optimal Stopping And Stochastic Impulsive Control Problems

The paper treats a computational method for the Optimal Stopping and Stochastic Impulsive Control problem for a diffusion. In the latter problem control acts only intermittently since there is a basic positive 'transaction' cost to be paid at each instant that the control acts. For each h> 0, a controlled Markov chain is constructed, whose continuous time interpolations are a natural approximation to the diffusion, for both the optimal stopping and impulsive control situations. The solutions to the optimal stopping and impulsive control problems for the chains are relatively easy to obtain by using standard procedures, and they converge to the solutions of the corresponding problems for the diffusion models as h nears 0.