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Teoriya Veroyatnostei i ee Primeneniya, 2000, Volume 45, Issue 4, Pages 748–759
DOI: https://doi.org/10.4213/tvp504 (Mi tvp504) 		 
Short Communications

On optimization of long-term irreversible investments in a diffusion model

E. B. Boguslavskaya

Steklov Mathematical Institute, Russian Academy of Sciences
Full-text PDF (627 kB)
DOI: https://doi.org/10.4213/tvp504
Abstract: In [J. Finan. Econ., 34 (1993), pp. 53–76] R. Pindyck introduced a model where uncertainty arises from the unknown amount of investments needed to complete a project. In this paper, we obtain an explicit solution for this problem.
To find a solution we use heuristic arguments based on the Bellman equation and the “smooth pasting condition”. To prove optimality of the solution we use verification theorems of stochastic optimal control.
Keywords: optimal control of investments, Bellman equation, smooth pasting conditions, utility function, profit function, Bessel functions, Kummer functions, hypergeometric functions.
Received: 01.10.1998
English version:
Theory of Probability and its Applications, 2001, Volume 45, Issue 4, Pages 647–658
DOI: https://doi.org/10.1137/S0040585X97978592
Bibliographic databases:
Document Type: Article
Language: Russian
Citation: E. B. Boguslavskaya, “On optimization of long-term irreversible investments in a diffusion model”, Teor. Veroyatnost. i Primenen., 45:4 (2000), 748–759; Theory Probab. Appl., 45:4 (2001), 647–658
Citation in format AMSBIB
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\transl
\jour Theory Probab. Appl.
\yr 2001
\vol 45
\issue 4
\pages 647--658
\crossref{https://doi.org/10.1137/S0040585X97978592}
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  • https://www.mathnet.ru/eng/tvp/v45/i4/p748
    • Citing articles in Google Scholar: Russian citations, English citations
    Related articles in Google Scholar: Russian articles, English articles
    		Теория вероятностей и ее применения Theory of Probability and its Applications
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