Irreversible Investment of the Risk- and Uncertainty-averse DM under k-Ignorance: The Role of BSDE

Zengwu Wang
Additional contact information
Zengwu Wang: Institute of Finance & Banking, Chinese Academy of Social Sciences

Annals of Economics and Finance, 2010, vol. 11, issue 2, 313-335

Abstract: In this paper, the approach of BSDE will be employed to study the irreversible investment problem under k-ignorance when the DM is risk- and uncertainty-averse. For the case of logarithmic utility, we work out the explicit solutions of the value of the utilized patent, the value of the unutilized patent, and the value of the reservation profit. Furthermore, in view of numerical method, the effects of the risk and the uncertainty on the above three parameters are analyzed. All the comparative static results are consistent with our intuition.

Keywords: Irreversible investment; k-ignorance; Risk; Uncertainty; Backward stochastic differential equation (BSDE in short); Conditional g-expectation (search for similar items in EconPapers)
JEL-codes: C61 D81 G11 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://aeconf.com/Articles/Nov2010/aef110206.pdf (application/pdf)
http://down.aefweb.net/AefArticles/aef110206.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2010:v:11:i:2:p:313-335

Access Statistics for this article

Annals of Economics and Finance is currently edited by Heng-fu Zou

More articles in Annals of Economics and Finance from Society for AEF Contact information at EDIRC.
Bibliographic data for series maintained by Qiang Gao ().