IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v21y1986i03p239-263_01.html
   My bibliography  Save this article

Stochastic Control of Corporate Investment when Output Affects Future Prices

Author

Listed:
  • Langetieg, Terence C.

Abstract

The advance of the theory of contingent claim pricing has made it possible to model and analyze very complex financial claims. When the value of the firm can be represented as a contingent claim, then the firm's optimal financial policy can be determined with only a slight modification in standard solution techniques for contingent claims. In this paper, stochastic control theory is used to determine a dynamic investment policy for the valuemaximizing firm. The value of future, stochastic economic rents (i.e., the net present value of the firm), and the firm's optimal investment policy must reflect a rational reaction on behalf of its competitors. A computationally efficient methodology is presented for solving the simultaneous investment-valuation problem for an n-firm game.

Suggested Citation

  • Langetieg, Terence C., 1986. "Stochastic Control of Corporate Investment when Output Affects Future Prices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(3), pages 239-263, September.
    • Handle: RePEc:cup:jfinqa:v:21:y:1986:i:03:p:239-263_01
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0022109000012151/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fehle, Frank & Tsyplakov, Sergey, 2005. "Dynamic risk management: Theory and evidence," Journal of Financial Economics, Elsevier, vol. 78(1), pages 3-47, October.
    2. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:21:y:1986:i:03:p:239-263_01. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/jfq .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.