Arbeitspapier
A Knightian irreversible investment problem
In this paper, we study an irreversible investment problem under Knightian uncertainty. In a general framework, in which Knightian uncertainty is modeled through a set of multiple priors, we prove existence and uniqueness of the optimal investment plan, and derive necessary and sufficient conditions for optimality. This allows us to construct the optimal policy in terms of the solution to a stochastic backward equation under the worst- case scenario. In a time-homogeneous setting - where risk is driven by a geometric Brownian motion and Knightian uncertainty is realized through a so-called "k-ignorance" - we are able to provide the explicit form of the optimal irreversible investment plan.
- Sprache
-
Englisch
- Erschienen in
-
Series: Center for Mathematical Economics Working Papers ; No. 634
- Klassifikation
-
Wirtschaft
Criteria for Decision-Making under Risk and Uncertainty
Optimization Techniques; Programming Models; Dynamic Analysis
Portfolio Choice; Investment Decisions
- Thema
-
irreversible investment
Knightian uncertainty
singular stochastic control
base capacity policy
first-order conditions for optimality
backward equations
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Ferrari, Giorgio
Li, Hanwu
Riedel, Frank
- Ereignis
-
Veröffentlichung
- (wer)
-
Bielefeld University, Center for Mathematical Economics (IMW)
- (wo)
-
Bielefeld
- (wann)
-
2020
- Handle
- URN
-
urn:nbn:de:0070-pub-29422529
- Letzte Aktualisierung
-
10.03.2025, 11:46 MEZ
Datenpartner
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Ferrari, Giorgio
- Li, Hanwu
- Riedel, Frank
- Bielefeld University, Center for Mathematical Economics (IMW)
Entstanden
- 2020
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