We consider an optimal stochastic impulse control problem over an infinite time horizon motivated by a model of irreversible investment choices with fixed adjustment costs. By employing techniques of viscosity solutions and relying on semiconvexity arguments, we prove that the value function is a classical solution to the associated quasi-variational inequality. This enables us to characterize the structure of the continuation and action regions and construct an optimal control. Finally, we focus on the linear case, discussing, by a numerical analysis, the sensitivity of the solution with respect to the relevant parameters of the problem.
Federico, S., Rosestolato, M., Tacconi, E. (2019). Irreversible investment with fixed adjustment costs: a stochastic impulse control approach. MATHEMATICS AND FINANCIAL ECONOMICS, 13, 579-616 [10.1007/s11579-019-00238-w].
Irreversible investment with fixed adjustment costs: a stochastic impulse control approach
Federico, Salvatore
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2019-01-01
Abstract
We consider an optimal stochastic impulse control problem over an infinite time horizon motivated by a model of irreversible investment choices with fixed adjustment costs. By employing techniques of viscosity solutions and relying on semiconvexity arguments, we prove that the value function is a classical solution to the associated quasi-variational inequality. This enables us to characterize the structure of the continuation and action regions and construct an optimal control. Finally, we focus on the linear case, discussing, by a numerical analysis, the sensitivity of the solution with respect to the relevant parameters of the problem.File | Dimensione | Formato | |
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https://hdl.handle.net/11365/1072455