Use of stochastic control theory to model a forest management system

A forest management problem due to Hellman has been modelled as a stochastic control problem with one state variable (inventory level) and one control variable (consumption rate of wood by the factories). The stochastic process governing the evolution of the inventory level is transformed into an Itô stoachastic differential equation by approximating the compound Poisson process of wood arrivals into the depot as a Wiener process. The resulting …