Scandinavian Working Papers in Economics
Working Paper Series,
Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance
No 19/11: Stochastic discount factors and the optimal timing of irreversible investments
Fredrik Armerin ()
Additional contact information
Fredrik Armerin: Department of Real Estate and Construction Management, Royal Institute of Technology, Postal: , Teknikringen 10B, 100 44 Stockholm, Sweden
Abstract: By using a general semimartingale framework, we show how the transformation of an optimal stopping problem under the objective probability measure into an optimal stopping problem under the risk-neutral probability measure looks like. We also note that the difference between equivalent and a locally equivalent are important when considering infinite time horizons (i.e., when considering perpetual options).
Keywords: optimal stopping; stochastic discount factors; irreversible investments
10 pages, December 20, 2019
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