Stochastic Optimization in Continuous Time

This is an introduction to stochastic control theory with applications to economics, first published in 2004.

Fwu-Ranq Chang (Author)

9780521834063, Cambridge University Press

Hardback, published 26 April 2004

346 pages
22.9 x 15.2 x 2.4 cm, 0.68 kg

Review of the hardback: 'The book is well written and should prove useful in graduate courses for economists and also in courses for other professionals who are willing to go into the mathematics of economic models.' Zentralblatt MATH

First published in 2004, this is a rigorous but user-friendly book on the application of stochastic control theory to economics. A distinctive feature of the book is that mathematical concepts are introduced in a language and terminology familiar to graduate students of economics. The standard topics of many mathematics, economics and finance books are illustrated with real examples documented in the economic literature. Moreover, the book emphasises the dos and don'ts of stochastic calculus, cautioning the reader that certain results and intuitions cherished by many economists do not extend to stochastic models. A special chapter (Chapter 5) is devoted to exploring various methods of finding a closed-form representation of the value function of a stochastic control problem, which is essential for ascertaining the optimal policy functions. The book also includes many practice exercises for the reader. Notes and suggested readings are provided at the end of each chapter for more references and possible extensions.

List of figures
Preface
1. Probability theory
2. Wiener processes
3. Stochastic calculus
4. Stochastic dynamic programming
5. How to solve it
6. Boundaries and absorbing barriers
Appendix. Miscellaneous applications and exercises
Bibliography
Index.

Subject Areas: Mathematics [PB], Finance [KFF], Economic statistics [KCHS], Econometrics [KCH]