Capital Accumulation and Real Options: An Impulse Control Theory Approach

Project: Research

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This proposal makes. the junction between two important trends in 1he economic and management literature. The literature on growth of firms and capital accumulation, initiated by a seminal contribution of Arrow and 1he theory of real options developed in 1he late eighties and nineties for investment decisions related to complex projects. The junction we are making is simple, but surprisingly has not been considered before. We consider capital accumulation via a sequence of projects, each of the projects requiring the sophistication of real options. Our approach is thus based on impulse control theory, rather than. on continuous control theory. The price to pay is that the mathematical problems which are encountered are quite involved and new. So this proposal not only is a contribution to the economic and management science domains, but also addresses novel and sophisticated problems in applied mathematics, in free boundary value problems and in numerical analysis.


Project number7004255
Grant typeSRG-Fd
Effective start/end date1/09/1426/07/16