Optimal entry to an irreversible investment plan with non convex costs

Tiziano de Angelis, Giorgio Ferrari, Randall Martyr and John Moriarty
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Tiziano de Angelis: Center for Mathematical Economics, Bielefeld University
Giorgio Ferrari: Center for Mathematical Economics, Bielefeld University
Randall Martyr: Center for Mathematical Economics, Bielefeld University
John Moriarty: Center for Mathematical Economics, Bielefeld University

No 566, Center for Mathematical Economics Working Papers from Center for Mathematical Economics, Bielefeld University

Abstract: A problem of optimally purchasing electricity at a real-valued spot price (that is, with potentially negative cost) has been recently addressed in De Angelis, Ferrari and Moriarty (2015) [SIAM J. Control Optim. 53(3)]. This problem can be considered one of irreversible investment with a cost functional which is non convex with respect to the control variable. In this paper we study the optimal entry into this investment plan. The optimal entry policy can have an irregular boundary arising from this non convexity, with a kinked shape.

Keywords: continuous-time inventory; optimal stopping; singular stochastic control; irreversible investment; Ornstein-Uhlenbeck price process (search for similar items in EconPapers)
Pages: 30
Date: 2016-07-21
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