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...

We solve two stochastic control problems in which a player tries to minimize or maximize the exit time from an interval of a Brownian particle, by controlling its drift. The player can change from one drift to another but is subject to a switching cost. In each problem, the value function is...

This paper examines a Markovian model for the optimal irreversible investment problem of a firm aiming at minimizing total expected costs of production. We model market uncertainty and the cost of investment per unit of production capacity as two independent one-dimensional regular diffusions,...

First, let u <Subscript> g </Subscript> be the unique solution of an elliptic variational inequality with source term g. We establish, in the general case, the error estimate between <InlineEquation ID="IEq1"> <EquationSource Format="TEX">$u_{3}(\mu)=\mu u_{g_{1}}+ (1-\mu)u_{g_{2}}$</EquationSource> </InlineEquation> and <InlineEquation ID="IEq2"> <EquationSource Format="TEX">$u_{4}(\mu)=u_{\mu g_{1}+ (1-\mu) g_{2}}$</EquationSource> </InlineEquation> for μ∈[0,1]. Secondly, we consider a...</equationsource></inlineequation></equationsource></inlineequation></subscript>

The current literature on irreversible investment decisions usually makes the assumption of a constant interest rate.We study the impact of interest rate and revenue variability on the decision to carry out an irreversible investment project.Given the generality of the valuation problem...

The current literature on optimal forest rotation makes the unrealistic assumption of constant interest rate though harvesting decisions of forest stands are typically subject to relatively long time horizons. We apply the single rotation framework to extend the existing studies to cover the...

The current extensive literature on irreversible investment decisions usually makes the assumption of constant interest rate. In this paper we study the impact of interest rate and revenue variability on the decision to carry out an irreversible investment project. Given the generality of the...