Essays on financial dynamic optimization under uncertainty

The field of financial optimization combines financial valuation approaches and economic optimization models. Most applications are characterized by dynamic settings where decisions over time are subject to many facets of uncertainty. Characterizing optimal decision making in these settings is of upmost importance in many areas of economic policy. The purpose of this research is to investigate economic policy issues in natural resource management and banking regulation through the application of methods of financial dynamic optimization under uncertainty in three essays: The first essay develops a general optimal stopping real option model for the management of mean reverting losses subject to stochastic jumps as an American call option. The model is numerically solved using the explicit finite difference method and provides comparative static results that reveal an important relationship between the two process parameters long run mean level of losses and speed of mean reversion which influence the termination value and therefore, the optimal stopping results.;The second essay applies the optimal stopping real option model developed in the first essay as an environmental control investment analysis tool to manage uncertain future invasive species damages. Based on application size, control strategy, and level of control effectiveness, separate policy menus are developed that provide optimal investment rules by reporting critical invader damage, real option, and time values for five selected scenarios. The analysis demonstrates the effects of different control strategy levers and reveals that negative skewness of the jump distribution has an effect on the policy results.;The third essay analyzes the impact of capital requirement regulation on the risk taking behavior of value maximizing banks using a financial intermediation model. The paper investigates four cases of intertemporal effects of capital regulation on risk choices when banks face different regulatory conditions. The results reveal differences in a bank's risk taking behavior based on profit, multiplier, and leverage effects. The interrelationship of retention rate, discount factor, and risky asset return has important implications for first and/or second best regulation. An optimal regulation rule is derived and three alternative regulation tools are characterized.