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Entry and exit decision problem with implementation delay


Costeniuc, Marius; Schnetzer, Michaela; Taschini, Luca (2008). Entry and exit decision problem with implementation delay. Journal of Applied Probability, 45(4):1039-1059.

Abstract

We study investment and disinvestment decisions in situations where there is a time lag 0 from the time t when the decision is taken to the time when the decision is implemented. Applying the probabilistic approach to the combined entry and exit decisions under the Parisian implementation delay, we solve the constrained maximization problem, obtaining an analytic solution to the optimal "starting" and "stopping" levels. We compare our results with the instantaneous entry and exit situation, and show that an increase in the uncertainty of the underlying process hastens the decision to invest or disinvest, extending a result of Bar-Ilan and Strange (1996).

Abstract

We study investment and disinvestment decisions in situations where there is a time lag 0 from the time t when the decision is taken to the time when the decision is implemented. Applying the probabilistic approach to the combined entry and exit decisions under the Parisian implementation delay, we solve the constrained maximization problem, obtaining an analytic solution to the optimal "starting" and "stopping" levels. We compare our results with the instantaneous entry and exit situation, and show that an increase in the uncertainty of the underlying process hastens the decision to invest or disinvest, extending a result of Bar-Ilan and Strange (1996).

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Physical Sciences > Statistics and Probability
Physical Sciences > General Mathematics
Social Sciences & Humanities > Statistics, Probability and Uncertainty
Language:English
Date:December 2008
Deposited On:10 Feb 2009 09:44
Last Modified:29 Jul 2020 17:34
Publisher:Applied Probability Trust
ISSN:0021-9002
OA Status:Hybrid
Publisher DOI:https://doi.org/10.1239/jap/1231340232
Official URL:http://projecteuclid.org/DPubS?service=UI&version=1.0&verb=Display&handle=euclid.jap
Related URLs:http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=605723 (Author)
http://ssrn.com/abstract=1153380 (UNSPECIFIED)

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