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Mathematics > Probability

arXiv:1802.09574 (math)
[Submitted on 26 Feb 2018]

Title:Optimal Investment Decision Under Switching regimes of Subsidy Support

Authors:Carlos Oliveira, Nicolas Perkowski
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Abstract:We address the problem of making a managerial decision when the investment project is subsidized, which results in the resolution of an infinite-horizon optimal stopping problem of a switching diffusion driven by either an homogeneous or an inhomogeneous continuous-time Markov chain.
We provide a characterization of the value function (and optimal strategy) of the optimal stopping problem. On the one hand, broadly, we can prove that the value function is the unique viscosity solution to a system of HJB equations. On the other hand, when the Markov chain is homogeneous and the switching diffusion is one-dimensional, we obtain stronger results: the value function is the difference between two convex functions.
Comments: 28 pages
Subjects: Probability (math.PR); Optimization and Control (math.OC)
Cite as: arXiv:1802.09574 [math.PR]
  (or arXiv:1802.09574v1 [math.PR] for this version)
  https://doi.org/10.48550/arXiv.1802.09574

Submission history

From: Nicolas Perkowski [view email]
[v1] Mon, 26 Feb 2018 19:58:07 UTC (24 KB)
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