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************************** Special Date ********************************
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Seminar
Department
of Systems Engineering and Engineering Management
The Chinese
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Title |
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A Model for Reversible
Investment Capacity Expansion |
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Speaker |
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Prof. Mihail Zervos |
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Department of Mathematics |
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Date |
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May 17th, 2007 (Thursday) |
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Time |
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4:30 p.m. - 5:30 p.m. |
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Venue |
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Room 513 |
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William M.W. Mong Engineering Building |
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(Engineering Building Complex Phase 2) |
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CUHK |
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Abstract:
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We consider the problem of determining the optimal
investment level that a firm should maintain in the presence of random price
and/or demand fluctuations. We model market uncertainty by means of a
geometric Brownian motion, and we consider general running payoff functions.
Our model allows for capacity expansion as well as for capacity reduction,
with each of these actions being associated with proportional costs. The
resulting optimisation problem takes the form of a
singular stochastic control problem that we solve explicitly. We illustrate
our results by means of the so-called Cobb-Douglas production function. The
problem that we study presents a model, the associated
Hamilton-Jacobi-Bellman equation of which admits a classical solution that
conforms with the underlying economic intuition but does not necessarily
identify with the corresponding value function, which may be identically equal
to $\infty$. Thus, our model provides a situation
that highlights the need for rigorous mathematical analysis when addressing
stochastic optimisation applications in finance and
economics, as well as in other fields. |
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Biography:
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Mihail Zervos
graduated from the Department of Electrical Engineering, National Technical
University of Athens in 1990. He received his MSc
degree in control systems and his PhD degree in stochastic control and optimisation in 1991 and 1995, respectively, from
Imperial College London. During the years 1995-2000, he was a lecturer in the
Department of Statistics at the |
************************* ALL ARE WELCOME ************************
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Host |
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Prof. Xun Yu Zhou |
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Tel |
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(852) 2609-8320 |
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Enquiries |
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Bolin Ding or Jeffrey Xu Yu |
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Department of Systems Engineering and Engineering
Management |
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CUHK |
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Website |
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Email |
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seg5810@se.cuhk.edu.hk |
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