In this paper we study the investment strategy of a firm that upon investment may produce in two alternative modes. These two modes differ in terms of the risk associated with the running payoff: one being more profitable when the market conditions are favourable but leading to larger losses in...

We study the optimal decision to undertake a preventive investment by a firm operating in a market with uncertain demand and whose products are subject to a risk of malfunction. It has an incentive to do so because malfunctions have two negative effects on its revenue. First, every malfunction...