Explicit investment rules with time-to-build and uncertainty

Autor: Huyên Pham, René Aïd, Bertrand Villeneuve, Salvatore Federico
Přispěvatelé: Laboratoire de Finance des Marchés d'Energie (FiME Lab), EDF R&D (EDF R&D), EDF (EDF)-EDF (EDF)-CREST-Université Paris Dauphine-PSL, Université Paris sciences et lettres (PSL)-Université Paris sciences et lettres (PSL), Dipartimento di Economia, Management e Metodi Quantitativi, Universitá di Milano, Department of Economics, Business and Statistics, Università degli Studi di Milano [Milano] (UNIMI)-Università degli Studi di Milano [Milano] (UNIMI), Centre de Recherche en Économie et Statistique (CREST), Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] (ENSAI)-École polytechnique (X)-École Nationale de la Statistique et de l'Administration Économique (ENSAE Paris)-Centre National de la Recherche Scientifique (CNRS), Laboratoire de Probabilités et Modèles Aléatoires (LPMA), Centre National de la Recherche Scientifique (CNRS)-Université Paris Diderot - Paris 7 (UPD7)-Université Pierre et Marie Curie - Paris 6 (UPMC), Laboratoire d'Economie de Dauphine (LEDa), Université Paris Dauphine-PSL, Université Pierre et Marie Curie - Paris 6 (UPMC)-Université Paris Diderot - Paris 7 (UPD7)-Centre National de la Recherche Scientifique (CNRS), Université Paris sciences et lettres (PSL)-Université Paris sciences et lettres (PSL)-CREST-EDF R&D (EDF R&D), EDF (EDF)-EDF (EDF), Università degli Studi di Milano = University of Milan (UNIMI)-Università degli Studi di Milano = University of Milan (UNIMI)
Jazyk: angličtina
Rok vydání: 2014
Předmět:
Economics and Econometrics
Control and Optimization
Comparative statics
delay equations
JEL: E - Macroeconomics and Monetary Economics/E.E2 - Consumption
Saving
Production
Investment
Labor Markets
and Informal Economy/E.E2.E22 - Investment • Capital • Intangible Capital • Capacity
JEL: D - Microeconomics/D.D9 - Intertemporal Choice/D.D9.D92 - Intertemporal Firm Choice
Investment
Capacity
and Financing
01 natural sciences
FOS: Economics and business
Microeconomics
010104 statistics & probability
JEL: C - Mathematical and Quantitative Methods/C.C6 - Mathematical Methods • Programming Models • Mathematical and Simulation Modeling/C.C6.C61 - Optimization Techniques • Programming Models • Dynamic Analysis
Demand curve
singular stochastic control
0502 economics and business
Economics
Econometrics
irreversible investments
0101 mathematics
Brownian motion
ComputingMilieux_MISCELLANEOUS
Delay equations
Irreversible investments
Optimal capacity
Singular stochastic control
Time-to-build
[QFIN.GN]Quantitative Finance [q-fin]/General Finance [q-fin.GN]
Discounting
050208 finance
Risk aversion
Applied Mathematics
05 social sciences
Investment (macroeconomics)
Mathematical Finance (q-fin.MF)
delay equations
optimal capacity
irreversible investments
singular stochastic control
time-to-build
delay equations
time-to-build
Nameplate capacity
[MATH.MATH-PR]Mathematics [math]/Probability [math.PR]
Cox–Ingersoll–Ross model
Quantitative Finance - Mathematical Finance
Local volatility
Volatility (finance)
optimal capacity
Zdroj: Journal of Economic Dynamics and Control
Journal of Economic Dynamics and Control, Elsevier, 2015, 51, pp.240-256
Journal of Economic Dynamics and Control, 2015, 51, pp.240-256. ⟨10.1016/j.jedc.2014.10.010⟩
ISSN: 0165-1889
DOI: 10.1016/j.jedc.2014.10.010⟩
Popis: International audience; We establish explicit socially optimal rules for an irreversible investment decision with time-to-build and uncertainty. Assuming a price sensitive demand function with a random intercept, we provide comparative statics and economic interpretations for three models of demand (arithmetic Brownian, geometric Brownian, and the Cox-Ingersoll-Ross). Committed capacity, that is, the installed capacity plus the investment in the pipeline, must never drop below the best predictor of future demand, minus two biases. The discounting bias takes into account the fact that investment is paid upfront for future use; the precautionary bias multiplies a type of risk aversion index by the local volatility. Relying on the analytical forms, we discuss in detail the economic effects. For example, the impact of volatility on the optimal investment is negligible in some cases. It vanishes in the CIR model for long delays, and in the GBM model for high discount rates.
Databáze: OpenAIRE
Externí odkaz: