In this paper, we consider a remote state estimation problem in the presence of an eavesdropper. A smart sensor takes measurement of a discrete linear time-invariant (LTI) process and sends its local state estimate through a wireless network to a remote estimator. An eavesdropper can overhear the sensor transmissions with a certain probability. To enhance the system privacy level, we propose a novel encryption strategy to minimize a linear combination of the expected error covariance at the remote estimator and the negative of the expected error covariance at the eavesdropper, taking into account the cost of the encryption process. We prove the existence of an optimal deterministic and Markovian policy for such an encryption strategy over a finite time horizon. Two situations, namely, with or without knowledge of the eavesdropper estimation error covariance are studied and the optimal schedule is shown to satisfy the threshold-like structure in both cases. Numerical examples are given to illustrate the results.
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