Salvatore Federico

Irreversible Investment with Fixed Adjustment Costs:

a Stochastic Impulse Control Approach

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. We prove that the value function of the optimization problem solves in the viscosity sense the associated quasi-variational inequality and then that it is sufficiently regular to enable to characterize in explicit form the continuation and action regions, the value function itself, and the optimal control. Finally, by a numerical analysis, we examine the sensitivity of the solution with respect to the relevant parameters of the problem.

Back