Corpus ID: 232233454

On an Irreversible Investment Problem with Two-Factor Uncertainty

  title={On an Irreversible Investment Problem with Two-Factor Uncertainty},
  author={F. Dammann and Giorgio Ferrari},
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… Expand

Figures from this paper


Global $C^1$ Regularity of the Value Function in Optimal Stopping Problems
We show that if either the process is strong Feller and the boundary point is probabilistically regular for the stopping set, or the process is strong Markov and the boundary point isExpand
Variational principles and free-boundary problems
Multidimensional investment problem
In this paper we demonstrate that the Riesz representation of excessive functions is a useful and enlightening tool to study optimal stopping problems. After a short general discussion of the RieszExpand
Optimal Boundary Surface with Stochastic Costs
  • Mathematics of Operations Research,
  • 2017
Optimal Stopping and Free-Boundary Problems
Optimal stopping: General facts.- Stochastic processes: A brief review.- Optimal stopping and free-boundary problems.- Methods of solution.- Optimal stopping in stochastic analysis.- Optimal stoppingExpand
Convex analysis and nonlinear optimization : theory and examples
Background * Inequality constraints * Fenchel duality * Convex analysis * Special cases * Nonsmooth optimization * The Karush-Kuhn-Tucker Theorem * Fixed points * Postscript: infinite versus finiteExpand
Investment under Uncertainty, 1994 (Princeton University Press: Princeton)
  • 1994
The Russian Option: Reduced Regret
We propose a new put option where the option buyer receives the maximum price (discounted) that the option has ever traded at during the time period (which may be indefinitely long) between theExpand
On optimal timing of investment when cost components are additive and follow geometric diffusions
Abstract The paper gives a partial characterization of the optimal stopping rule for a problem with reward function g ( t, x ) = e − rt ( x 1 − x 2 − ··· − x n ), where x 1 ,…, x n follow geometricExpand
Irreversibility, Uncertainty, and Investment
Despite its importance to economic growth and the evolution of market structure, the investment behavior of firms, industries, and countries remains poorly understood. This paper has severalExpand