Optimal R &D Investment Problem with Regime-Switching

Ming-hui Wang, Jia Yue and Nan-jing Huang ()
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Ming-hui Wang: Southwestern University of Finance and Economics
Jia Yue: Southwestern University of Finance and Economics
Nan-jing Huang: Sichuan University

Journal of Optimization Theory and Applications, 2024, vol. 202, issue 2, No 14, 878-896

Abstract: Abstract In this paper, we study the optimal research and development (R &D) investment problem under the framework of real options in a regime-switching environment. We assume that the firm has an R &D project whose input process with technical uncertainty is affected by different regimes. By the method of dynamic programming, we have obtained the related Hamilton–Jacobi–Bellman (HJB) equation and solved it in three different cases. Then, the optimal solution for our model is constructed and the related verification theorem is also provided. Finally, some numerical examples are given to investigate the properties of our model.

Keywords: Real options; Regime-switching; Research and development; Technical uncertainty; 91B06; 91B38; 93C30 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10957-024-02451-0

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