Investment under Ambiguity and Regime-Switching Environment
نویسندگان
چکیده
We consider all or nothing investment problem with a finite time horizon when the investment opportunity set is changing stochastically over time, especially under Markovian regime-switching environment, and a decision maker faces ambiguity of parameters governing profit flow dynamics of the investment. We apply α-Maxmin Expected Utility(α-MEU) preferences to reflect the ambiguity seeking attitude of decision maker and provide semi-explicit formulas for the expected value of investment and the critical present value of the profit flow. Numerical results show that the critical present value of the profit flow depends on the business cycle and a paramount parameter in investment decision making is related to a investment period. JEL classification : D81, G11
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