Arbeitspapier

Firm decisions under jump-diffusive dynamics

We present a model of firm investment under uncertainty and partial irreversibility in which uncertainty is represented by a jump diffusion. This allows to represent both the continuous Gaussian volatility and the discontinuous uncertainty related to information arrival, sudden changes and large shocks. The model shows how both sources of uncertainty negatively impact the optimal investment and disinvestment policies, and how the presence oflarge negative jumps can drastically affect the firm's ability to recover. Our results show that the standard Gaussian framework consistently underestimates the negative effect of uncertainty on firm investment decisions. We test these predictions on a panel dataset of UK firms: we first structurally estimate the uncertainty parameters using multinomial maximum likelihood and differential evolution techniques and subsequently study their impact on firm investment rates, validating our model predictions.

Sprache
Englisch

Erschienen in
Series: Graduate Institute of International and Development Studies Working Paper ; No. HEIDWP04-2019

Klassifikation
Wirtschaft
Optimization Techniques; Programming Models; Dynamic Analysis
Existence and Stability Conditions of Equilibrium
Firm Behavior: Theory
Firm Behavior: Empirical Analysis
Thema
firm investment
uncertainty
jump diffusions
partial irreversibility
real options

Ereignis
Geistige Schöpfung
(wer)
Deopa, Neha
Rinaldo, Daniele
Ereignis
Veröffentlichung
(wer)
Graduate Institute of International and Development Studies
(wo)
Geneva
(wann)
2019

Handle
Letzte Aktualisierung
10.03.2025, 11:41 MEZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Deopa, Neha
  • Rinaldo, Daniele
  • Graduate Institute of International and Development Studies

Entstanden

  • 2019

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