Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/238124 
Year of Publication: 
2021
Series/Report no.: 
Center for Mathematical Economics Working Papers No. 646
Publisher: 
Bielefeld University, Center for Mathematical Economics (IMW), Bielefeld
Abstract: 
We consider a real options model for the optimal irreversible investment problem of a profit maximizing company. The company has the opportunity to invest into a production plant capable of producing two products, of which the prices follow two independent geometric Brownian motions. After paying a constant sunk investment cost, the company sells the products on the market and thus receives a continuous stochastic revenue-flow. This investment problem is set as a twodimensional optimal stopping problem. We find that the optimal investment decision is triggered by a convex curve, which we characterize as the unique continuous solution to a nonlinear integral equation. Furthermore, we provide analytical and numerical comparative statics results of the dependency of the project's value and investment decision with respect to the model's parameters.
Subjects: 
Real Options
Irreversible Investment
Optimal Stopping
Nonlinear Integral Equation
Comparative Statics
JEL: 
G11
C61
D25
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.