A Note on Irreversible Investment, Hedging and Optimal Consumption Problems
نویسندگان
چکیده
A canonical problem in real option pricing, as described in the classic text of Dixit and Pindyck [2], is to determine the optimal time to invest at a fixed cost, to receive in return a stochastic cashflow. In this paper we are interested in this problem in an incomplete market where the cashflow is not spanned by the traded assets. We follow the formulation in Miao and Wang [21]; our contribution is to show that significant progress can be made in solving the Hamilton-Jacobi-Bellman equation and that the optimal exercise threshold can be characterized quite precisely.
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