Investment with an arithmetic process and lags

Bar-Ilan, Avner

doi:10.1002/mde.973

Cited by 12 publications

(8 citation statements)

References 8 publications

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“…32 The Oi-Hartman-Abel effect is one channel by which investment might increase in response to higher uncertainty (Oi, 1961;Hartman, 1972;Abel, 1983). Growth options are another possible channel by which investment might increase (Bar-Ilan & Strange, 1996). However, given how transitory the initial increase is, I do not think I am picking up evidence of these effects since they are typically small in the short run (Bloom, 2014).…”

Section: Does Foreign or Domestic Uncertainty Matter?mentioning

confidence: 98%

Measuring Economic Uncertainty and Its Effects

Moore

2017

Economic Record

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I construct a monthly index of economic uncertainty for Australia. Economic uncertainty rose to historically high levels during the financial crisis and remained elevated until late 2013. The index is: higher around recessions, elections, monetary policy surprises and some major events; tends to increase faster than it decreases; and is driven by both domestic and foreign factors. I use the index to assess how uncertainty affects the Australian economy. Consistent with the ‘real options’ channel of uncertainty, I find that it reduces investment and employment growth. Similarly, uncertainty raises the household saving ratio, consistent with the ‘precautionary savings’ channel.

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Section: Does Foreign or Domestic Uncertainty Matter?mentioning

confidence: 98%

Measuring Economic Uncertainty and Its Effects

Moore

2017

Economic Record

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“…However, if the costs are some linear functions of the commodity price, we obtain a condition which guarantees that the firm should never enter the project (Theorem 5.1 or the conclusion (1) of Theorem 5.8). We also obtain an explicit solution of entry and exit decisions provided that the project is worthy to be invested in (the conclusions (2) and (3) of Theorem 5.8).…”

Section: Introductionmentioning

confidence: 98%

Entry and exit decisions with linear costs under uncertainty

Zhang

2014

Stochastics

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From the viewpoint of stochastic programming, we rigorously analyse entry and exit decisions of a project which were proposed by Dixit [A. Dixit, Entry and exit decisions under uncertainty, J. Polit. Econ. 97 (1989), pp. 620-638]. In this article, instead of assuming that the costs are constant in classical research, we assume that they are linear with respect to the price of the commodity produced by the project. Under this assumption, we obtain a condition which guarantees that investing in the project is worthless; besides, the project may be terminated when the commodity price is greater than a certain value. In contrast, there are no such results provided that the costs are constant. Moreover, we provide an explicit solution of entry and exit decisions if the project is worthy to be invested in.

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“…In many situations, firms or investors face regulatory delays (delivery lag), which may be significant, and thus need to be taken into account when management strategies are decided in an uncertain environment. Problems where firm's investment are subject to delivery lag can be found in the real options literature, for example in [2] and [1]. In financial market context, execution delay is related to liquidity risk (see e.g.…”

Section: Introductionmentioning

confidence: 99%

Impulse control problem on finite horizon with execution delay

Bruder

Pham²

2009

Stochastic Processes and their Applications

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We consider impulse control problems in finite horizon for diffusions with decision lag and execution delay. The new feature is that our general framework deals with the important case when several consecutive orders may be decided before the effective execution of the first one. This is motivated by financial applications in the trading of illiquid assets such as hedge funds. We show that the value functions for such control problems satisfy a suitable version of dynamic programming principle in finite dimension, which takes into account the past dependence of state process through the pending orders. The corresponding Bellman partial differential equations (PDE) system is derived, and exhibit some peculiarities on the coupled equations, domains and boundary conditions. We prove a unique characterization of the value functions to this nonstandard PDE system by means of viscosity solutions. We then provide an algorithm to find the value functions and the optimal control. This easily implementable algorithm involves backward and forward iterations on the domains and the value functions, which appear in turn as original arguments in the proofs for the boundary conditions and uniqueness results.

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Investment with an arithmetic process and lags

Cited by 12 publications

References 8 publications

Measuring Economic Uncertainty and Its Effects

Measuring Economic Uncertainty and Its Effects

Entry and exit decisions with linear costs under uncertainty

Impulse control problem on finite horizon with execution delay

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