Entry-exit decisions with implementation delay under uncertainty

Yong-Chao Zhang

Applications of Mathematics (2018)

  • Volume: 63, Issue: 4, page 399-422
  • ISSN: 0862-7940

Abstract

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We employ a natural method from the perspective of the optimal stopping theory to analyze entry-exit decisions with implementation delay of a project, and provide closed expressions for optimal entry decision times, optimal exit decision times, and the maximal expected present value of the project. The results in conventional research were obtained under the restriction that the sum of the entry cost and exit cost is nonnegative. In practice, we may meet cases when this sum is negative, so it is necessary to remove the restriction. If the sum is negative, there may exist two trigger prices of entry decision, which does not happen when the sum is nonnegative, and it is not optimal to enter and then immediately exit the project even though it is an arbitrage opportunity.

How to cite

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Zhang, Yong-Chao. "Entry-exit decisions with implementation delay under uncertainty." Applications of Mathematics 63.4 (2018): 399-422. <http://eudml.org/doc/294388>.

@article{Zhang2018,
abstract = {We employ a natural method from the perspective of the optimal stopping theory to analyze entry-exit decisions with implementation delay of a project, and provide closed expressions for optimal entry decision times, optimal exit decision times, and the maximal expected present value of the project. The results in conventional research were obtained under the restriction that the sum of the entry cost and exit cost is nonnegative. In practice, we may meet cases when this sum is negative, so it is necessary to remove the restriction. If the sum is negative, there may exist two trigger prices of entry decision, which does not happen when the sum is nonnegative, and it is not optimal to enter and then immediately exit the project even though it is an arbitrage opportunity.},
author = {Zhang, Yong-Chao},
journal = {Applications of Mathematics},
keywords = {entry decision time; exit decision time; implementation delay; optimal stopping problem; viscosity solution},
language = {eng},
number = {4},
pages = {399-422},
publisher = {Institute of Mathematics, Academy of Sciences of the Czech Republic},
title = {Entry-exit decisions with implementation delay under uncertainty},
url = {http://eudml.org/doc/294388},
volume = {63},
year = {2018},
}

TY - JOUR
AU - Zhang, Yong-Chao
TI - Entry-exit decisions with implementation delay under uncertainty
JO - Applications of Mathematics
PY - 2018
PB - Institute of Mathematics, Academy of Sciences of the Czech Republic
VL - 63
IS - 4
SP - 399
EP - 422
AB - We employ a natural method from the perspective of the optimal stopping theory to analyze entry-exit decisions with implementation delay of a project, and provide closed expressions for optimal entry decision times, optimal exit decision times, and the maximal expected present value of the project. The results in conventional research were obtained under the restriction that the sum of the entry cost and exit cost is nonnegative. In practice, we may meet cases when this sum is negative, so it is necessary to remove the restriction. If the sum is negative, there may exist two trigger prices of entry decision, which does not happen when the sum is nonnegative, and it is not optimal to enter and then immediately exit the project even though it is an arbitrage opportunity.
LA - eng
KW - entry decision time; exit decision time; implementation delay; optimal stopping problem; viscosity solution
UR - http://eudml.org/doc/294388
ER -

References

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