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Investments with declining cost following a Lévy process

Fredrik Armerin ()
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Fredrik Armerin: Department of Real Estate and Construction Management, Royal Institute of Technology, Postal: Division of Real Estate Economics and Finance, Teknikringen 10B, 100 44 Stockholm, Sweden

No 20/14, Working Paper Series from Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance

Abstract: We consider an optimal investment problem in which the cost of the investment decreases over time. The decrease is modelled using the negative of a non-decreasing Lévy process. The decreasing cost is a way of modelling that innovations drive down the cost of the investment. Several explicit examples of how different Lévy processes influence the value of the investment are given.

Keywords: Optimal stopping; irreversible investments; innovations; Lévy processes (search for similar items in EconPapers)
JEL-codes: G11 G13 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2020-12-21
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:kthrec:2020_014

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