Optimal regulators for a class of nonlinear stochastic systems

Abstract

We consider a class of nonlinear stochastic systems with square-root nonlinearities appearing in the diffusion terms. The optimal control problems with indefinite quadratic criteria in both finite and infinite horizon are formulated and solved in an explicit closed form. It turns out that all optimal controls are of an affine state-feedback form, despite the fact that the system is nonlinear. We use the method of completion of squares and new types of Riccati differential and algebraic equations to find the solutions. An application to the problem of optimal investment in a market with a stochastic interest rate is given.

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