Ewald, C. and Wang, W.-K. (2010) Irreversible investment with Cox-Ingersoll-Ross type mean reversion. Mathematical Social Sciences, 59(3), pp. 314-318. (doi: 10.1016/j.mathsocsci.2009.12.002)
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Abstract
We solve a Dixit and Pindyck type irreversible investment problem in continuous time under the assumption that the project value follows a Cox–Ingersoll–Ross process. This setup works well for modeling foreign direct investment in the framework of real options, when the exchange rate is uncertain and the project value fixed in a foreign currency. We indicate how the solution qualitatively differs from the two classical cases: geometric Brownian motion and geometric mean reversion. Furthermore, we discuss analytical properties of the Cox–Ingersoll–Ross process and demonstrate potential advantages of this process as a model for the project value with regard to the classical ones.
Item Type: | Articles |
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Status: | Published |
Refereed: | Yes |
Glasgow Author(s) Enlighten ID: | Ewald, Professor Christian |
Authors: | Ewald, C., and Wang, W.-K. |
Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance Q Science > QA Mathematics |
College/School: | College of Social Sciences > Adam Smith Business School > Economics |
Journal Name: | Mathematical Social Sciences |
ISSN: | 0165-4896 |
Published Online: | 04 January 2010 |
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