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Autoren: 
Ferrari, Giorgio
Li, Hanwu
Riedel, Frank
Datum: 
2020
Schriftenreihe/Nr.: 
Center for Mathematical Economics Working Papers No. 634
Zusammenfassung: 
In this paper, we study an irreversible investment problem under Knightian uncertainty. In a general framework, in which Knightian uncertainty is modeled through a set of multiple priors, we prove existence and uniqueness of the optimal investment plan, and derive necessary and sufficient conditions for optimality. This allows us to construct the optimal policy in terms of the solution to a stochastic backward equation under the worst- case scenario. In a time-homogeneous setting - where risk is driven by a geometric Brownian motion and Knightian uncertainty is realized through a so-called "k-ignorance" - we are able to provide the explicit form of the optimal irreversible investment plan.
Schlagwörter: 
irreversible investment
Knightian uncertainty
singular stochastic control
base capacity policy
first-order conditions for optimality
backward equations
JEL: 
D81
C61
G11
Persistent Identifier der Erstveröffentlichung: 
Dokumentart: 
Working Paper

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