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An investment model with entry and exit decisions

Part of: Stochastic systems and control

Published online by Cambridge University Press:  14 July 2016

J. Kate Duckworth  and
Mihail Zervos
J. Kate Duckworth*
Affiliation:
University of Newcastle
Mihail Zervos*
Affiliation:
King's College London
*
∗Postal address: Department of Statistics, School of Mathematics and Statistics, University of Newcastle, Newcastle upon Tyne NE1 7RU, UK. Email address: j.k.duckworth@newcastle.ac.uk
∗∗Postal address: Department of Mathematics, King's College London, The Strand, London WC2R 2LS, UK. Email adress:mihail.zervos@kcl.ac.uk
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Abstract

We consider an investment model which generalizes a number of models that have been studied in the literature. The model involves entry and exit decisions as well as decisions relating to production scheduling. We then address the problem of its valuation from the standpoint of the dynamic programming approach. Our analysis results in a closed form analytic solution that can take qualitatively different forms depending on parameter values.

Keywords

Stochastic controloptimal stoppingreal assets

MSC classification

Primary: 93E20: Optimal stochastic control 93E03: Stochastic systems, general
Type
Research Papers
Information
Journal of Applied Probability , Volume 37 , Issue 2 , June 2000 , pp. 547 - 559
Copyright
Copyright © by the Applied Probability Trust 2000 

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