Scandinavian Working Papers in Economics
Working Paper Series,
Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance
No 20/14: Investments with declining cost following a Lévy process
Fredrik Armerin ()
Additional contact information
Fredrik Armerin: Department of Real Estate and Construction Management, Royal Institute of Technology, Postal: Division of Real Estate Economics and Finance, Teknikringen 10B, 100 44 Stockholm, Sweden
Abstract: We consider an optimal investment problem in which the cost of the investment decreases over time. The decrease is modelled using the negative of a non-decreasing Lévy process. The decreasing cost is a way of modelling that innovations drive down the cost of the investment. Several explicit examples of how different Lévy processes influence the value of the investment are given.
Keywords: Optimal stopping; irreversible investments; innovations; Lévy processes
16 pages, December 21, 2020
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