On a switching control problem with càdlàg costs

Abstract

This work addresses a switching control problem under which the cost associated with the changes of regimes is allowed to have discontinuities in time. Our main contribution is to show several characterizations of the optimal cost function as well as the existence of ε-optimal control policies. As a by-product, we also study the existence and uniqueness of solutions of a system of backward stochastic differential equations whose barriers (or obstacles) are discontinuous (in fact of càdlàg type) and depend itself on the unknown solution. In the last part of the paper, we study the case when an underlying diffusion is part of the dynamic of the system. In this special case, the optimal payoff becomes a weak solution of the HJB system of PDEs with discontinuous obstacles which is of quasi-variational type. This paper is somehow a continuation of the papers [B. Djehiche, S. Hamadène, and A. Popier, A finite horizon optimal multiple switching problem, SIAM J. Control Optim. 48 (2009), pp. 2751–2770; S. Hamadène and M.A. Morlais, Viscosity solutions of systems of PDEs with interconnected Obstacle and switching problem, Appl. Math. Optim. 67 (2013), pp. 163–196.] that consider continuous costs.