A Knightian irreversible investment problem

Ferrari G, Li H, Riedel F (2022)
Journal of Mathematical Analysis and Applications 507(1): 125744.

Zeitschriftenaufsatz | Veröffentlicht | Englisch
 
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Abstract / Bemerkung
In this paper, we study an irreversible investment problem under Knightian uncertainty. In a general framework, in which Knightian uncertainty is modeled through a set of multiple priors, we prove existence and uniqueness of the optimal investment plan, and derive necessary and sufficient conditions for optimality. This allows us to construct the optimal policy in terms of the solution to a stochastic backward equation under the worst-case scenario. In a time-homogeneous setting – where risk is driven by a geometric Brownian motion and Knightian uncertainty is realized through a so-called “κ-ignorance” – we are able to provide the explicit form of the optimal irreversible investment plan.
Erscheinungsjahr
2022
Zeitschriftentitel
Journal of Mathematical Analysis and Applications
Band
507
Ausgabe
1
Art.-Nr.
125744
ISSN
0022-247X
Page URI
https://pub.uni-bielefeld.de/record/2958433

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Ferrari G, Li H, Riedel F. A Knightian irreversible investment problem. Journal of Mathematical Analysis and Applications. 2022;507(1): 125744.
Ferrari, G., Li, H., & Riedel, F. (2022). A Knightian irreversible investment problem. Journal of Mathematical Analysis and Applications, 507(1), 125744. https://doi.org/10.1016/j.jmaa.2021.125744
Ferrari, G., Li, H., and Riedel, F. (2022). A Knightian irreversible investment problem. Journal of Mathematical Analysis and Applications 507:125744.
Ferrari, G., Li, H., & Riedel, F., 2022. A Knightian irreversible investment problem. Journal of Mathematical Analysis and Applications, 507(1): 125744.
G. Ferrari, H. Li, and F. Riedel, “A Knightian irreversible investment problem”, Journal of Mathematical Analysis and Applications, vol. 507, 2022, : 125744.
Ferrari, G., Li, H., Riedel, F.: A Knightian irreversible investment problem. Journal of Mathematical Analysis and Applications. 507, : 125744 (2022).
Ferrari, Giorgio, Li, Hanwu, and Riedel, Frank. “A Knightian irreversible investment problem”. Journal of Mathematical Analysis and Applications 507.1 (2022): 125744.

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