Arbeitspapier
Knightian Uncertainty, k-Ignorance, and Optimal Timing
We investigate within a continuous time setting how Knightian uncertainty characterized by k-ignorance affects the optimal timing policies of a risk-neutral and uncertainty averse investor in the case where the exercise payoff is monotonic. We prove that increased Knightian uncertainty unambiguously decreases the value of the optimal timing policy of an uncertainty averse investor. We also show that higher Knightian uncertainty accelerates timing by shrinking the continuation region whenever the termination payoff is independent of Knightian uncertainty. If this independence condition is not fulfilled, then our results indicate that higher Knightian uncertainty may decelerate optimal timing.
- Language
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Englisch
- Bibliographic citation
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Series: Discussion paper ; No. 25
- Classification
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Wirtschaft
Optimization Techniques; Programming Models; Dynamic Analysis
Criteria for Decision-Making under Risk and Uncertainty
- Subject
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Knightian uncertainty
k-ambiguity
optimal stopping
diffusions
- Event
-
Geistige Schöpfung
- (who)
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Alvarez, Luis H. R.
- Event
-
Veröffentlichung
- (who)
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Aboa Centre for Economics (ACE)
- (where)
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Turku
- (when)
-
2007
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Alvarez, Luis H. R.
- Aboa Centre for Economics (ACE)
Time of origin
- 2007
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