Stochastic maximum principle for optimal control under uncertainty

Optimal control problems involve the difficult task of determining time-varying profiles through dynamic optimization. Such problems become even more complex in practical situations where handling time dependent uncertainties becomes an important issue. Approaches to stochastic optimal control problems have been reported in the finance literature and are based on real option theory, combining Ito’s Lemma and the dynamic programming formulation. This paper describes a new approach to stochastic optimal control problems in which the stochastic d r m i © P K