On an irreversible investment problem with two-factor uncertainty

Arbeitspapier

We consider a real options model for the optimal irreversible investment problem of a profit maximizing company. The company has the opportunity to invest into a production plant capable of producing two products, of which the prices follow two independent geometric Brownian motions. After paying a constant sunk investment cost, the company sells the products on the market and thus receives a continuous stochastic revenue-flow. This investment problem is set as a twodimensional optimal stopping problem. We find that the optimal investment decision is triggered by a convex curve, which we characterize as the unique continuous solution to a nonlinear integral equation. Furthermore, we provide analytical and numerical comparative statics results of the dependency of the project's value and investment decision with respect to the model's parameters.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Center for Mathematical Economics Working Papers ; No. 646

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Portfolio Choice; Investment Decisions ; Optimization Techniques; Programming Models; Dynamic Analysis ; Intertemporal Firm Choice: Investment, Capacity, and Financing
• Thema: Real Options ; Irreversible Investment ; Optimal Stopping ; Nonlinear Integral Equation ; Comparative Statics

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Dammann, Felix ; Ferrari, Giorgio
• Ereignis: Veröffentlichung
• (wer): Bielefeld University, Center for Mathematical Economics (IMW)
• (wo): Bielefeld
• (wann): 2021

Weitere Informationen

• Handle: http://hdl.handle.net/10419/238124
• URN: urn:nbn:de:0070-pub-29528604
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ