Entry-exit decisions with implementation delay under uncertainty.

DOI10.21136/AM.2018.0205-17MaRDI QIDQ1785659zbMATH OpenOpenAlexWikidataFDO

Authors Yong-Chao Zhang

Publication date 1 October 2018

Published in Applications of Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1503.01285

zbMATH Keywords

entry decision timeexit decision timeimplementation delayoptimal stopping problemviscosity solution

Mathematics Subject Classification ID

Stopping times; optimal stopping problems; gambling theory (60G40) Decision theory (91B06)

Abstract: We employ a natural method from the perspective of the optimal stopping theory to analyze entry-exit decisions with implementation delay of a project, and provide closed expressions for optimal entry decision times, optimal exit decision times and the maximal expected present value from the project. The results in conventional research were obtained under the restriction that the sum of the entry cost and the exit cost is nonnegative. In practice, we usually meet this sum is negative, so it is necessary to remove the restriction. If the sum is negative, there may exist two price triggers of entry decision, which does not happen when the sum is nonnegative, and it is not optimal to enter and then immediately exit the project even though it is an arbitrage opportunity.

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Cited in

(10)

• Entry and exit decisions under uncertainty
• Optimal entry decisions under uncertainty
• Entry-exit decisions with underlying processes following geometric Lévy processes
• An entry-exit model involving construction and abandonment periods
• Entry and exit decisions with linear costs under uncertainty
• Entry and Exit Decision Problem with Implementation Delay
• The precautionary principle when project implementation capacity is congestible
• Timing of entry under externalities
• Entry and exit decisions based on a discount factor approach
• The effect of mean reversion on entry and exit decisions under uncertainty

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