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| Sardana, Kavita; Bhattacharya, Subhra K.. |
| This study investigates the optimal switching boundary to a renewable fuel when oil prices exhibit continuous random fluctuations along with occasional discontinuous jumps. In this paper, oil prices are modeled to follow jump diffusion processes. A completeness result is derived. Given that the market is complete the value of a contingent claim is risk neutral expectation of the discounted pay off process. Using the contingent claim analysis of investment under uncertainty, the Hamilton-Jacobi-Bellman (HJB) equation is derived for finding value function and optimal switching boundary. We get a mixed differential-difference equation which would be solved using numerical methods. |
| Tipo: Conference Paper or Presentation |
Palavras-chave: Demand and Price Analysis; Resource /Energy Economics and Policy. |
| Ano: 2011 |
URL: http://purl.umn.edu/103926 |
