Seminar series
Date
Fri, 07 Nov 2003
14:15
14:15
Location
DH 3rd floor SR
Speaker
Mihail Zervos
Organisation
KCL
We consider an investment model that can operate in two different
modes. The transition from one mode to the other one is immediate and forms a
sequence of costly decisions made by the investment's management. Each of the
two modes is associated with a rate of payoff that is a function of a state
process which can be an economic indicator such as the price of a given
comodity. We model the state process by a general one-dimensional
diffusion. The objective of the problem is to determine the switching
strategy that maximises a long-term average criterion in a pathwise
sense. Our analysis results in analytic solutions that can easily be
computed, and exhibit qualitatively different optimal behaviours.