Investment Timing Under Incomplete Information

@article{Dcamps2005InvestmentTU,
  title={Investment Timing Under Incomplete Information},
  author={Jean-Paul D{\'e}camps and Thomas Mariotti and St{\'e}phane Villeneuve},
  journal={Math. Oper. Res.},
  year={2005},
  volume={30},
  pages={472-500}
}
We study the decision of when to invest in a project whose value is perfectly observable but driven by a parameter that is unknown to the decision-maker ex-ante. This problem is equivalent to an optimal stopping problem for a bivariate Markov process. Using filtering and martingale techniques, we show that the optimal investment region is characterized by a continuous and non-decreasing boundary in the value-belief state space. This generates path-dependency in the optimal investment strategy… CONTINUE READING

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