An Optimal Dividend and Investment Control Problem under Debt Constraints

Chevalier, Etienne; Vath, Vathana Ly; Scotti, Simone

doi:10.1137/120866816

Cited by 21 publications

(20 citation statements)

References 24 publications

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“…An explicit solution for the value function is not available. Existence of the solution and uniqueness can be addressed via viscosity solution methods, see for example Ceci & Bassan (2004), Chevalier et al (2013), Pham (2009. In order to compare the optimal investment strategy with the one obtained in the no switching case, we solve the above problem numerically considering a finite difference technique to discretize the partial differential equation, coupled with the Picard iterative scheme.…”

Section: Regime Switching With Full Informationmentioning

confidence: 99%

Risk Seeking, Nonconvex Remuneration and Regime Switching

Barucci

Marazzina

2015

Int. J. Theor. Appl. Finan.

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We investigate asset management in a regime switching framework when the fund manager aims to beat a certain target for the assets under management over an infinite horizon or over a finite horizon. We consider both a full information and a partial information setting. In a full information setting, the asset manager tends to take more risk in the good state and less risk in the bad state with respect to the constant parameter environment. Confidence risk induces the agent to increase his risk exposure.

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Section: Regime Switching With Full Informationmentioning

confidence: 99%

Risk Seeking, Nonconvex Remuneration and Regime Switching

Barucci

Marazzina

2015

Int. J. Theor. Appl. Finan.

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“…However, they do not present explicitly the optimal level of investment and the actual potential investment stopping times. On the other hand the study by Chevalier, Vath and Scotti [13] considered the problem of determining the optimal control on the dividend and investment policy of a firm. In addition, they considered the fact that the firm carries a debt obligation in its balance sheet.…”

Section: Introductionmentioning

confidence: 99%

“…Lemma 1. The diffusion equation presented by (18) with some given initial and boundary conditions deduced from (13) and (14) has a unique solution.…”

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confidence: 99%

Optimal Investment Strategy under Stochastic Interest Rates

Mtunya¹,

Ngare²,

Nkansah-Gyekye³

2017

JMF

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We study how firms' management can make effective investment decision under the influence of random interest rates. We define the threshold interest rate value below which investment can be effectively done and above which investment is not optimal. We use a stochastic differential equation with alternating drift to find the optimal investment policy under stochastic interest rate. One of our results indicated that, the optimal condition for investment expansion is when the interest rate is low and the profit level is high. Also, there exists the threshold interest rate value which forms the basis for investment decision of a company. Moreover, we revealed that it is not optimal for the managers to plan for firm's business expansion when is already making extremely high profits. At the end we were able to confirm that business is generally more stable when the interest rates are lower than those when they are high. Since firms in emerging economies suffer most from interest rate fluctuations, they need more effective investment strategies. Monetary policy makers of such economies need to ensure low interest rates in order to promote firms' investment and therefore boost the general economy.

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“…There is a vast literature on firm's investment decisions in stochastic environments, see for instance [2,4,8,15,18,19,23]. In relation to our study, Dixit and Pindyck [9] consider various firm's decisions problems with entry, exit, suspension and/or abandonment scenarios in the case of an asset given by a geometric Brownian motion.…”

Section: Introductionmentioning

confidence: 99%

Optimal exit strategies for investment projects

Chevalier

Vath

Roch

et al. 2015

Journal of Mathematical Analysis and Applications

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We study the problem of an optimal exit strategy for an investment project which is unprofitable and for which the liquidation costs evolve stochastically. The firm has the option to keep the project going while waiting for a buyer, or liquidating the assets at immediate liquidity and termination costs. The liquidity and termination costs are governed by a mean-reverting stochastic process whereas the rate of arrival of buyers is governed by a regime-shifting Markov process. We formulate this problem as a multidimensional optimal stopping time problem with random maturity. We characterize the objective function as the unique viscosity solution of the associated system of variational Hamilton-Jacobi-Bellman inequalities. We derive explicit solutions and numerical examples in the case of power and logarithmic utility functions when the liquidity premium factor follows a mean-reverting CIR process.

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An Optimal Dividend and Investment Control Problem under Debt Constraints

Cited by 21 publications

References 24 publications

Risk Seeking, Nonconvex Remuneration and Regime Switching

Risk Seeking, Nonconvex Remuneration and Regime Switching

Optimal Investment Strategy under Stochastic Interest Rates

Optimal exit strategies for investment projects

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