Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/119543
Authors: 
Framstad, Nils Chr.
Year of Publication: 
2014
Series/Report no.: 
Memorandum, Department of Economics, University of Oslo 25/2014
Abstract: 
A risk-neutral agent optimizes extraction of dividends or renewable natural resources modelled by a jump-diffusion stock process, where the optimal strategy is characterized as the minimal intervention required to keep the stock process inside a given region. The introduction of a small fixed cost per intervention, is shown to induce a loss at worst of order Kappa2/3, corresponding to a minimal intervention size of order Kappa1/3, under suitable conditions; there are degenerate cases if purely discontinuous harvesting is optimal for the frictionless problem. If extraction is reversible, at cost between half and twice the extraction cost, the exponents are 1/2 and 1/4, agreeing with the effect of fixed costs in a consumption-portfolio optimization problem for a risk-averse agent.
Subjects: 
optimal stochastic control
resource extraction
dividend extraction
jump-diffusion model
transaction costs
JEL: 
Q20
D23
G11
Document Type: 
Working Paper

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