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

Salvatore Federico (), Mauro Rosestolato and 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.

Date: 2018-01, Revised 2019-02
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Citations: View citations in EconPapers (6)

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