Geodesic
On optimization of long-term irreversible investments in a diffusion model
Teoriâ veroâtnostej i ee primeneniâ, Tome 45 (2000) no. 4, pp. 748-759

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In [J. Finan. Econ., 34 (1993), pp. 53–76] R. Pindyck introduced a model where uncertainty arises from the unknown amount of investments needed to complete a project. In this paper, we obtain an explicit solution for this problem. To find a solution we use heuristic arguments based on the Bellman equation and the “smooth pasting condition”. To prove optimality of the solution we use verification theorems of stochastic optimal control.
Keywords: optimal control of investments, smooth pasting conditions, utility function, profit function, Bessel functions, Kummer functions, hypergeometric functions.
Mots-clés : Bellman equation 
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     author = {E. B. Boguslavskaya},
     title = {On optimization of long-term irreversible investments in a diffusion model},
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E. B. Boguslavskaya. On optimization of long-term irreversible investments in a diffusion model. Teoriâ veroâtnostej i ee primeneniâ, Tome 45 (2000) no. 4, pp. 748-759. http://geodesic.mathdoc.fr/item/TVP_2000_45_4_a8/