This paper presents a new framework for Merton's optimal investment problem which uses the theory of Meyer $\sigma$-fields to allow signals that possibly warn investor about impending jumps. With strategies no longer predictable, some care has be taken properly define wealth dynamics through stochastic integration. By means dynamic programming, we solve explicitly power utilities. In case study...

We establish a model of insurance pricing with the assumption that the insurance price, insurer investment returns, and insured losses are correlated stochastic processes. We consider the effect of demand on price where the objective of the pricing model is to maximize the expected utility of the insurer’s terminal wealth. Based on a Hamilton–Jacobi–Bellman (HJB) equation, we simultaneously sol...

The oil company holds the investment opportunity to develop a delineated oilfield. The investment plan must be presented until a specific date or the oilfield rights return to the government. The firm considers a set of mutually exclusive alternatives of scale to exploit the oilfield. Larger scale means faster exploitation – increasing the present value of revenues, but also higher investment c...

We consider a simple political-economic model where capitalist investment is constrained by the government's temptation to expropriate. Political liberalization can relax this constraint, increasing the government's revenue, but also increasing the ruler's political risks. We analyze the ruler's optimal liberalization, where our measure of political liberalization is the probability of the rule...

in this paper, the study deals with the lead time and setup reduction problem in the vendor-purchaser integrated inventory model. the cost of capital (i.e., opportunity cost) is one of the key factors in making the inventory and investment decisions. lead time is an important element in any inventory system. the proposed model is presents an integrated inventory model with controllable lead tim...

This paper proposes a model to determine the optimal investment time for energy storage systems (ESSs) in a price arbitrage trade application under conditions of uncertainty over future profits. The adoption of ESSs can generate profits from price arbitrage trade, which are uncertain because the future marginal prices of electricity will change depending on supply and demand. In addition, since...

The optimal investment policy for a standard multi-period mean–variance model is not time-consistent because the variance operator is not separable in the sense of the dynamic programming principle. With a nested conditional expectation mapping, we develop an investment model with time consistency in Markovian markets. Furthermore, we examine the differences of the investment policies with a ri...

Papers published in this report series are preliminary versions of journal articles and not for quotations. Abstract This paper extends the real options literature by discussing an investment problem, where a firm has to determine optimal investment timing and optimal capacity choice at the same time under conditions of irreversible investment expenditures and uncertainty in future demand. Afte...

What determines optimal R&D investment in a market with indirect network effects? We analyze this question in a hardware-software framework, where software firms strategically invest in quality upgrades. We find that a firm’s optimal investment depends predominantly on (1) the quality level of its software relative to its competitors on the same hardware and on (2) the quality levels of all sof...