OPTIMAL SWITCHING IN AN ECONOMIC-ACTIVITY UNDER UNCERTAINTY

This paper considers the problem of finding the optimal sequence of op ening (starting) and closing (stopping) times of a multi-activity prod uction process, given the costs of opening, running, and closing the a ctivities and assuming that the state of the economic system is a stoc hastic process. The problem is formulated as an extended impulse contr ol problem and solved using stochastic calculus. As an application, th e optimal starting and stopping strategy are explicitly found for a re source extraction when the price of the resource is following a geomet ric Brownian motion.