An irreversible investment problem with maintenance expenditure on a finite horizon: Free boundary analysis
This paper concerns a continuous-time, finite horizon, optimal irreversible investment problem with maintenance expenditure of a firm under uncertainty. We assume that the firm can make irreversible investments to expand its production capacity and spend maintenance expenditure to achieve better per...
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| Vydáno v: | Journal of mathematical analysis and applications Ročník 440; číslo 2; s. 597 - 623 |
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| Hlavní autoři: | , |
| Médium: | Journal Article |
| Jazyk: | angličtina |
| Vydáno: |
Elsevier Inc
15.08.2016
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| Témata: | |
| ISSN: | 0022-247X, 1096-0813 |
| On-line přístup: | Získat plný text |
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| Shrnutí: | This paper concerns a continuous-time, finite horizon, optimal irreversible investment problem with maintenance expenditure of a firm under uncertainty. We assume that the firm can make irreversible investments to expand its production capacity and spend maintenance expenditure to achieve better performance of the productivity. The objective of the firm is to construct optimal investment and maintenance policies to maximize its expected total profit over a finite horizon. Mathematically, it is a singular stochastic control problem whose value function satisfies a parabolic variational inequality with gradient constraint. The problem gives rise to two free boundaries which stand for the optimal investment and maintenance strategies, respectively. We investigate behaviors of free boundaries, study regularities of the value function, and give optimal investment and maintenance policies. As we know, this is a first integral result for an investment–maintenance problem with a finite time horizon due to use of partial differential equation (PDE) technique. |
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| ISSN: | 0022-247X 1096-0813 |
| DOI: | 10.1016/j.jmaa.2016.03.048 |