Duopolistic Competition and Capacity Choice with Jump-Diffusion Process

Danmei Chen

doi:10.4236/jmf.2015.52018

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Journal of Mathematical Finance > Vol.5 No.2, May 2015

Duopolistic Competition and Capacity Choice with Jump-Diffusion Process ()

Danmei Chen^1,2

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

DOI: 10.4236/jmf.2015.52018 PDF HTML XML 2,441 Downloads 2,862 Views Citations

Abstract

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.

Keywords

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

Share and Cite:

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.

Conflicts of Interest

The authors declare no conflicts of interest.

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