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Competitive investment with varying risk premia
KTH, Superseded Departments (pre-2005), Real Estate and Construction Management. KTH, School of Architecture and the Built Environment (ABE), Real Estate and Construction Management.ORCID iD: 0000-0001-5574-0522
(English)Manuscript (preprint) (Other academic)
Abstract [en]

This paper considers a model with a time-varying risk premium. The risk premium is driven by a continuous time Markov chain, representing the state in the economy, and the stochastic process generating the cash flows is a Markov-modulated geometric Brownian motion. An existing firm is facing the possibility of competitors entering the market, and due to this, cash flows are limited at levels which are dependent on the state of the economy. This results in a regulated Markov-modulated geometric Brownian motion, and the resulting accumulated supply can have jumps, something that is not possible in a model with only one regime.

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Economics and Business
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URN: urn:nbn:se:kth:diva-266101OAI: oai:DiVA.org:kth-266101DiVA, id: diva2:1381221
Available from: 2019-12-20 Created: 2019-12-20 Last updated: 2019-12-20

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fulltext(676 kB)10 downloads
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File name FULLTEXT01.pdfFile size 676 kBChecksum SHA-512
cf70041efc0c9f0a4dace6602c7892c733e9d6b5e3657edb8a7e26f3021a8003d8e2187c87b0557facbb6286574196554a2b34e1221d300ed6499b78fb35f059
Type fulltextMimetype application/pdf

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Armerin, FredrikGunnelin, Åke
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CiteExportLink to record
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Citation style
  • apa
  • ieee
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Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
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  • Other locale
More languages
Output format
  • html
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  • asciidoc
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