Irreversible investment with fixed adjustment costs: a stochastic impulse control approach
Optimization and Control
2019-02-05 v3 Mathematical Finance
Abstract
We consider an optimal stochastic impulse control problem over an infinite time horizon motivated by a model of irreversible investment choices with fixed adjustment costs. By employing techniques of viscosity solutions and relying on semiconvexity arguments, we prove that the value function is a classical solution to the associated quasi-variational inequality. This enables us to characterize the structure of the continuation and action regions and construct an optimal control. Finally, we focus on the linear case, discussing, by a numerical analysis, the sensitivity of the solution with respect to the relevant parameters of the problem.
Keywords
Cite
@article{arxiv.1801.04491,
title = {Irreversible investment with fixed adjustment costs: a stochastic impulse control approach},
author = {Salvatore Federico and Mauro Rosestolato and Elisa Tacconi},
journal= {arXiv preprint arXiv:1801.04491},
year = {2019}
}