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A More General Problem of Investment Timing
A Simple Extension
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aggregate investment spending assume Bellman equation boundary conditions calculate capital gain changes commodities condition 6a contingent claim convenience yield cost of investing critical price determine discount rate dividend rate dynamic programming effects example exchange rates expected rate Figure financial call option firm's option future cash flows future value futures price growth Hence Huppi increase industry interest rates invest today investment behavior investment decision investment expenditure investment option investment problem irreversibility of investment irreversible investment Ito's Lemma keeping the option macroeconomic McDonald and Siegel models of irreversible Note opportunity cost optimal investment rule option to invest output Pindyck present value price falls price of widgets produce random walk rate of capital rate of return reader can check risk risk-adjusted risk-free portfolio Section short position solution to eqn solve spanning stochastic processes stock returns sunk costs uncertainty over future variance of stock volatility waiting Wijnbergen zero