Reversible stopping (“switching”) implies super contact |
| |
Authors: | Franz Wirl |
| |
Institution: | (1) University of Vienna, Brünnerstr. 72, 1210 Vienna, Austria |
| |
Abstract: | This note shows that the second derivative of the value function exists (across a stopping threshold, short “super contact”)
if reversibly stopping and entering involves no cost, called “switching”. This holds for discrete (real option) as well as
for continuous stochastic control problems and proves particularly suitable in real option set ups since it provides the lacking
boundary condition. However, super contact does not hold in dynamic games. A simple example documents the applicability of
this condition.
This paper was written during my visit of the University of Technology, Sydney (UTS) and I am grateful for the hospitality
of and the stimulus at the School of Finance and Economics, in particular to Carl Chiarella. I also acknowledge many helpful
discussions with Thomas Dangl on related issues, valuable suggestions from a referee and last but not least encouragement
by Josef Kallrath |
| |
Keywords: | It?-process Stopping Switching Super contact Real option |
本文献已被 SpringerLink 等数据库收录! |
|