Irreversible investment problems
AbstractThis paper mathematically treats the following economic problem: A company wants to expand its capacity in investments that are irreversible. The problem is to find the best investment strategy taking the fluctuating market into account. We give some implicit conditions for a solution in the case where the market process is n-dimensional and an explicit solution in the one dimensional case.
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Bibliographic InfoArticle provided by Springer in its journal Finance and Stochastics.
Volume (Year): 4 (2000)
Issue (Month): 2 ()
Note: received: May 1998; final version received: June 1999
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Web page: http://www.springerlink.com/content/101164/
Find related papers by JEL classification:
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
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- Alvarez, Luis H.R. & Koskela , Erkki, 2003.
"Irreversible investment under interest rate variability: new results,"
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- Luis H. R. Alvarez & Erkki Koskela, 2002. "Irreversible Investment under Interest Rate Variability: New Results," CESifo Working Paper Series 640, CESifo Group Munich.
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- Tiziano De Angelis & Giorgio Ferrari, 2013. "A Stochastic Reversible Investment Problem on a Finite-Time Horizon: Free Boundary Analysis," Working Papers 477, Bielefeld University, Center for Mathematical Economics.
- Yiannis Kamarianakis & Anastasios Xepapadeas, 2006. "An irreversible investment model with a stochastic production capacity and fixed plus proportional adjustment costs," Working Papers 0708, University of Crete, Department of Economics.
- Luis H.R. Alvarez E., 2006. "Irreversible Investment, Incremental Capital Accumulation, and Price Uncertainty," Discussion Papers 4, Aboa Centre for Economics.
- GAHUNGU, Joachim & SMEERS, Yves, 2011. "A real options model for electricity capacity expansion," CORE Discussion Papers 2011044, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Giorgio Ferrari, 2012. "On an Integral Equation for the Free Boundary of Stochastic, Irreversible Investment Problems," Working Papers 471, Bielefeld University, Center for Mathematical Economics.
- Frank Riedel & Xia Su, 2011.
"On irreversible investment,"
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Springer, vol. 15(4), pages 607-633, December.
- Alvarez, Luis H.R., 2011. "Optimal capital accumulation under price uncertainty and costly reversibility," Journal of Economic Dynamics and Control, Elsevier, vol. 35(10), pages 1769-1788, October.
- Giorgio Ferrari, 2012. "On an Integral Equation for the Free-Boundary of Stochastic, Irreversible Investment Problems," Papers 1211.0412, arXiv.org, revised Jul 2013.
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