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Irreversible investment problems

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  • Anders ûksendal

    ()
    (Department of Mathematics, University of Oslo, P.O.Box 1053 Blindern, N-0316 Oslo, Norway Manuscript)

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    Abstract

    This 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 Info

    Article provided by Springer in its journal Finance and Stochastics.

    Volume (Year): 4 (2000)
    Issue (Month): 2 ()
    Pages: 223-250

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    Handle: RePEc:spr:finsto:v:4:y:2000:i:2:p:223-250

    Note: received: May 1998; final version received: June 1999
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    Web page: http://www.springerlink.com/content/101164/

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    Related research

    Keywords: Optimal stochastic control; irreversible investments; monotone increasing controls; Feller processes;

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    Cited by:
    1. Alvarez, Luis H.R. & Koskela, Erkki, 2003. "Irreversible Investment under Interest Rate Variability: Some Generalizations," Discussion Papers 841, The Research Institute of the Finnish Economy.
    2. 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.
    3. Xia Su & Frank Riedel, 2006. "On Irreversible Investment," Bonn Econ Discussion Papers bgse13_2006, University of Bonn, Germany.
    4. Alvarez, Luis H.R. & Koskela , Erkki, 2003. "Irreversible investment under interest rate variability: new results," Research Discussion Papers 29/2003, Bank of Finland.
    5. 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.
    6. Luis H.R. Alvarez E., 2006. "Irreversible Investment, Incremental Capital Accumulation, and Price Uncertainty," Discussion Papers 4, Aboa Centre for Economics.
    7. 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.
    8. 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.
    9. Giorgio Ferrari, 2012. "On an Integral Equation for the Free-Boundary of Stochastic, Irreversible Investment Problems," Papers 1211.0412, arXiv.org, revised Jul 2013.
    10. 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).

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