Irreversible Investment of the Risk- and Uncertainty-averse DM under k-Ignorance: The Role of BSDE
AbstractIn this paper, the approach of BSDE will be employed to study the irreversible investment problem under k-ignorance when the DM is risk- and uncertainty-averse. For the case of logarithmic utility, we work out the explicit solutions of the value of the utilized patent, the value of the unutilized patent, and the value of the reservation profit. Furthermore, in view of numerical method, the effects of the risk and the uncertainty on the above three parameters are analyzed. All the comparative static results are consistent with our intuition.
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Bibliographic InfoArticle provided by Society for AEF in its journal Annals of Economics and Finance.
Volume (Year): 11 (2010)
Issue (Month): 2 (November)
Irreversible investment; k-ignorance; Risk; Uncertainty; Backward stochastic differential equation (BSDE in short); Conditional g-expectation;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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