This paper examines an optimal investment problem of Abel and Eberly (1997) and Imai and Tsujimura (2016) under higher degree of ambiguity. To that end we introduces an exponential Lévy process as the underlying risk process of the project. The ambiguity indicates a manager’s disconfidence with respect to the underlying model. It can be formulated as allowing one to change the reference probabi...

The stock price process is modelled by a geometric Lévy process (taking into account jumps). Except for the geometric Brownian model and the geometric Poissonian model, the resulting models are incomplete and there are many equivalent martingale measures. However the model can be completed by the so called power-jump assets. By doing this we allow investment in these new assets and we can try t...

As a consequence of optimal investment choices, a firm’s assets and growth options change in predictable ways. Using a dynamic model, we show that this imparts predictability to changes in a firm’s systematic risk, and its expected return. Simulations show that the model simultaneously reproduces: ~i! the time-series relation between the book-to-market ratio and asset returns; ~ii! the cross-se...

This paper studies optimal investment decision under uncertainty regarding agricultural income subsidies. The approach is based on stochastic programming. Investment decision is modelled as a Markov decision process. The cost of imperfect information can be estimated as the difference between the profitability of investment under stable income subsidies and under uncertain subsidies. risk. Assu...

Under the real options approach to investment under uncertainty, agents formulate optimal policies under the assumption that firms’ growth prospects do not vary over time. This paper proposes and solves a model of investment decisions in which the growth rate and volatility of the decision variable shift between different states at random times. A value-maximizing investment policy is derived s...

This paper brings into focus a link between the investment and nancing decisions of a rm which has an access to costly debt nancing. Our analysis shows that lump-sum debt issuance costs play a prominent role in a determination of the optimal investment strategy. Faced with larger lump-sum debt issuance costs, a rm will optimally set up a higher-scale investment project in order to "compensate" ...

t Wilkie's stochastic investment model and its variants have been increasingly applied by actuaries around the world to actuarial modeling and simulation. This paper performs time series outlier analysis on retail price inflation, which is the driving force of Wilkie's composite model. The data come from four developed countries: the United Kingdom, the United States, Canada, and Australia. The...

This study models a joint pricing, inventory, and preservation decision-making problem for deteriorating items subject to stochastic demand and promotional effort. The generalized price-dependent stochastic demand, time proportional deterioration, and partial backlogging rates are used to model the inventory system. The objective is to find the optimal pricing, replenishment, and preservation t...

This paper studies an asset and liability management problem with extended Cox-Ingersoll-Ross (CIR) interest rate, where the financial market is composed of one risk-free asset and multiple risky assets and one zero-coupon bond. We assume that risk-free interest rate is driven by extended CIR interest rate model, while liability is modeled by Brownian motion with drift and is generally correlat...