On an Irreversible Investment Problem with Two-Factor Uncertainty

Dammann F, Ferrari G (2021) Center for Mathematical Economics Working Papers; 646.
Bielefeld: Center for Mathematical Economics.

Diskussionspapier | Veröffentlicht | Englisch
 
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Abstract / Bemerkung
We consider a real options model for the optimal irreversible investment problem of a profit maximizing company. The company has the opportunity to invest into a production plant capable of producing two products, of which the prices follow two independent geometric Brownian motions. After paying a constant sunk investment cost, the company sells the products on the market and thus receives a continuous stochastic revenue-flow. This investment problem is set as a twodimensional optimal stopping problem. We find that the optimal investment decision is triggered by a convex curve, which we characterize as the unique continuous solution to a nonlinear integral equation. Furthermore, we provide analytical and numerical comparative statics results of the dependency of the project's value and investment decision with respect to the model's parameters.
Stichworte
Real Options; Irreversible Investment; Optimal Stopping; Nonlinear Integral Equation; Comparative Statics
Erscheinungsjahr
2021
Band
646
Seite(n)
23
ISSN
0931-6558
Page URI
https://pub.uni-bielefeld.de/record/2952860

Zitieren

Dammann F, Ferrari G. On an Irreversible Investment Problem with Two-Factor Uncertainty. Center for Mathematical Economics Working Papers. Vol 646. Bielefeld: Center for Mathematical Economics; 2021.
Dammann, F., & Ferrari, G. (2021). On an Irreversible Investment Problem with Two-Factor Uncertainty (Center for Mathematical Economics Working Papers, 646). Bielefeld: Center for Mathematical Economics.
Dammann, F., and Ferrari, G. (2021). On an Irreversible Investment Problem with Two-Factor Uncertainty. Center for Mathematical Economics Working Papers, 646, Bielefeld: Center for Mathematical Economics.
Dammann, F., & Ferrari, G., 2021. On an Irreversible Investment Problem with Two-Factor Uncertainty, Center for Mathematical Economics Working Papers, no.646, Bielefeld: Center for Mathematical Economics.
F. Dammann and G. Ferrari, On an Irreversible Investment Problem with Two-Factor Uncertainty, Center for Mathematical Economics Working Papers, vol. 646, Bielefeld: Center for Mathematical Economics, 2021.
Dammann, F., Ferrari, G.: On an Irreversible Investment Problem with Two-Factor Uncertainty. Center for Mathematical Economics Working Papers, 646. Center for Mathematical Economics, Bielefeld (2021).
Dammann, Felix, and Ferrari, Giorgio. On an Irreversible Investment Problem with Two-Factor Uncertainty. Bielefeld: Center for Mathematical Economics, 2021. Center for Mathematical Economics Working Papers. 646.
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2021-03-18T08:40:36Z
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