A stochastic partially reversible investment problem on a finite time-horizon: free-boundary analysis
Articolo
Data di Pubblicazione:
2014
Abstract:
We study a continuous-time, finite horizon, stochastic partially reversible investment problem for a firm producing a single good in a market with frictions. The production capacity is modeled as a one-dimensional, time-homogeneous, linear diffusion controlled by a bounded variation process which represents the cumulative investment-disinvestment strategy. We associate to the investment-disinvestment problem a zero-sum optimal stopping game and characterize its value function through a free-boundary problem with two moving boundaries. These are continuous, bounded and monotone curves that solve a system of non-linear integral equations of Volterra type. The optimal investment-disinvestment strategy is then shown to be a diffusion reflected at the two boundaries. © 2014 Elsevier B.V. All rights reserved.
Tipologia CRIS:
03A-Articolo su Rivista
Keywords:
Free-boundary problems; Partially reversible investment; Singular stochastic control; Skorokhod reflection problem; Zero-sum optimal stopping games
Elenco autori:
De Angelis T.; Ferrari G.
Link alla scheda completa:
Link al Full Text:
Pubblicato in: