English, Article, Journal or magazine article edition: Optimal investment timing using Markov jump price processes Fernando A. C. C. Fonte; Dalila B. M. M. Fontes

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Optimal investment timing using Markov jump price processes
Author
  • Fernando A. C. C. Fonte
  • Dalila B. M. M. Fontes
Physical Description
  • preprint
Notes
  • In this work, we address an investment problem where the investment can either be made immediately or postponed to a later time, in the hope that market conditions become more favourable. In our case, uncertainty is introduced through market price. When the investment is undertaken, a fixed sunk cost must be paid and a series of cash flows are to be received. Therefore, we are faced with an irreversible investment. Real options analysis provides an adequate framework for this type of problems by recognizing these two characteristics, uncertainty and irreversibility, explicitly. We describe algorithmic solutions for this type of problems by modelling market prices evolution by Markov jump processes.
  • Irreversible investment, optimal stopping, dynamic programming, Markov jump processes
  • RePEc:por:fepwps:245
Language
  • English
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