TITLE:
Duopolistic Competition and Capacity Choice with Jump-Diffusion Process
AUTHORS:
Danmei Chen
KEYWORDS:
Investment Decisions, Competitive, Real Option Game, Jump-Diffusion Process
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.5 No.2,
May
22,
2015
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.