Long-term Optimal Real Investment Strategies in the Presence of Adjustment Costs

@inproceedings{Lkka2006LongtermOR,
  title={Long-term Optimal Real Investment Strategies in the Presence of Adjustment Costs},
  author={Arne L\okka and Mihail Zervos},
  year={2006}
}
We consider the problem of determining in a dynamical way the optimal capacity level of an investment project that operates within a random economic environment. In particular, we consider an investment project that yields a payoff at a rate that depends on its installed capacity level and on a random economic indicator such as, for instance, the price of the project’s output commodity. We model the economic indicator by a one-dimensional ergodic Itô diffusion. At any time, the capacity level… CONTINUE READING

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