scientific article; zbMATH DE number 176009
A general class of investment problems under uncertainty and irreversibility is analysed. Stochastic optimization techniques offer a sight into the combined effect of uncertainty and irreversibility. An optimal investment in irreversible capacity for a profit-maximizing firm with profit function subject to random fluctuation is considered. This representation includes the case of demand uncertainty, stochastic product price, input price uncertainty or random disturbances in the product or cost function. The uncertainty is specified as a geometric Brownian motion. A generalized Hamilton-Jacobi-Bellman equation to characterize the optimal investment decision is derived. It is shown that the optimal capacity is smaller when uncertainty and irreversibility are taken in account. Finally, the relationship between the stochastic control model introduced in this paper and the optimal value model is discussed. For the entire collection see [Zbl 0754.00018].
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