An irreversible investment problem with maintenance expenditure on a finite horizon: Free boundary analysis

JOURNAL OF MATHEMATICAL ANALYSIS AND APPLICATIONS

卷:440

Article

Han, Xiaoru¹  Yi, Fahuai² 

[1] Foshan Univ, Dept Math, Foshan 528000, Guangdong, Peoples R China

[2] Guangdong Univ Foreign Studies, Sch Finance, Guangzhou 510006, Guangdong, Peoples R China

关键词: Irreversible investment;    Maintenance;    Finite horizon;    Singular stochastic control;    Variational inequality;    Free boundary problem;   

DOI  :  10.1016/j.jmaa.2016.03.048

来源: Elsevier

【 摘 要 】

This paper concerns a continuous-time, finite horizon, optimal irreversible investment problem with maintenance expenditure of a firm under uncertainty. We assume that the firm can make irreversible investments to expand its production capacity and spend maintenance expenditure to achieve better performance of the productivity. The objective of the firm is to construct optimal investment and maintenance policies to maximize its expected total profit over a finite horizon. Mathematically, it is a singular stochastic control problem whose value function satisfies a parabolic variational inequality with gradient constraint. The problem gives rise to two free boundaries which stand for the optimal investment and maintenance strategies, respectively. We investigate behaviors of free boundaries, study regularities of the value function, and give optimal investment and maintenance policies. As we know, this is a first integral result for an investment maintenance problem with a finite time horizon due to use of partial differential equation (PDE) technique. (C) 2016 Elsevier Inc. All rights reserved.

【 授权许可】

Free