Stochastic Optimization in Continuous Time

Review
"Chang discusses various solution techniques, including the inverse optimum methodology." University of Chicago Magazine


Book Description
Most of the current books on stochastic control theory are written for students in mathematics or finance. This introduction is designed, however, for those interested in the relevance and applications of the theory's mathematical principles to economics. Therefore, mathematical methods are discussed intuitively and illustrated with economic examples. More importantly, mathematical concepts are introduced in language and terminology familiar to graduate students in economics.


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This is a 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. Although the topics are standard in many mathematics, economics, and finance books, they are illustrated with many real examples documented in the economic literature. Moreover, the book emphasizes the dos and don'ts of stochastic calculus, and cautions 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.


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