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arXiv · 1801.04491

Irreversible investment with fixed adjustment costs: a stochastic impulse control approach

Salvatore Federico·Mauro Rosestolato·Elisa Tacconi
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Abstract

We consider an optimal stochastic impulse control problem over an infinite time horizon motivated by a model of irreversible investment choices with fixed adjustment costs. By employing techniques of viscosity solutions and relying on semiconvexity arguments, we prove that the value function is a classical solution to the associated quasi-variational inequality. This enables us to characterize the structure of the continuation and action regions and construct an optimal control. Finally, we focus on the linear case, discussing, by a numerical analysis, the sensitivity of the solution with respect to the relevant parameters of the problem.

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Salvatore Federico, Mauro Rosestolato, Elisa Tacconi. 2018-01-13. Irreversible investment with fixed adjustment costs: a stochastic impulse control approach. https://arxiv.org/abs/1801.04491

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