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https://hdl.handle.net/2440/51103
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Type: | Journal article |
Title: | Investment timing under regime switching |
Author: | Elliott, R. Miao, H. Yu, J. |
Citation: | International Journal of Theoretical and Applied Finance, 2009; 12(4):443-463 |
Publisher: | World Scientific Publishing Co Pte Ltd |
Issue Date: | 2009 |
ISSN: | 0219-0249 1793-6322 |
Statement of Responsibility: | Robert J. Elliott, Hong Miao and Jin Yu |
Abstract: | <jats:p>We investigate the optimal investment timing strategy in a real option framework. Depending on the state of the economy, whose changes are modeled by a Markov chain, the investment cost can take one of two values. The optimal investment timing decision is determined by finding the free boundary of a perpetual American option. Three investment timing policies, based on different assumptions of investors' information sets, are determined and compared. In the full information case, a significantly earlier optimal exercising time is indicated. We show that an optimal-timing policy suggested by the conventional real option model might ruin the investment opportunities.</jats:p> |
Keywords: | Regime switching real option investment timing. |
DOI: | 10.1142/S0219024909005361 |
Grant ID: | ARC |
Published version: | http://dx.doi.org/10.1142/s0219024909005361 |
Appears in Collections: | Aurora harvest Mathematical Sciences publications |
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