The δ - sensitivity and its application to stochastic optimal control of nonlinear diffusions

Abstract

We provide optimal control laws by using tools from stochastic calculus of variations and the mathematical concept of δ-sensitivity. The analysis relies on logarithmic transformations of the value functions and the use of linearly solvable Partial Differential Equations(PDEs). We derive the corresponding optimal control as a function of the δ-sensitivity of the logarithmic transformation of the value function for the case of nonlinear diffusion processes affine in control and noise.