Author(s)

Danmei Chen^1,2

¹School of Finance, Shanghai University of Finance and Economics, Shanghai, China.
²Basic Department, Shanghai Jianqiao University, Shanghai, China.

This paper studies the effects of sudden events on the optimal timing and capacity choice in a duopoly market. According to the characteristics of economic environment, we assume that the product demand follows geometric Brownian motion with a Poisson jump process. Under the settings, the firms face the risk of a sudden drop in demand which is caused by sudden events. We develop the real option game model to derive the investment equilibrium strategies. Moreover, the effects of sudden events on investment decisions are obtained by numerical analysis.

Investment Decisions, Competitive, Real Option Game, Jump-Diffusion Process

Chen, D. (2015) Duopolistic Competition and Capacity Choice with Jump-Diffusion Process. Journal of Mathematical Finance, 5, 192-201. doi: 10.4236/jmf.2015.52018.