Stochastic Variational formulas for solutions to linear diffusion equations

2009/12/01 by Joseph G. Conlon, Conlon, Joseph G., Mohar Guha +1
Computer Science · Economics, Econometrics and Finance · Mathematics · #Advanced Mathematical Modeling in Engineering #Nonlinear Partial Differential Equations #Stochastic processes and financial applications #math.OC #msc:35K55 #msc:60J60 #msc:93E20

paper · pdf · doi:10.48550/arxiv.0912.0185

76 pages

arxiv created 2009/12/01 · arxiv updated 2009/12/08

Abstract

This paper is concerned with solutions to a one dimensional linear diffusion equation and their relation to some problems in stochastic control theory. A stochastic variational formula is obtained for the logarithm of the solution to the diffusion equation, with terminal data which is the characteristic function of a set. In this case the terminal data for the control problem is singular, and hence standard theory does not apply. The variational formula is used to prove convergence in the zero noise limit of the cost function for the stochastic control problem and its first derivatives, to the corresponding quantities for a classical control problem.

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