Research output: Working paper
Research output: Working paper
}
TY - UNPB
T1 - Economic hysteresis effects and hitting time densities for CIR diffusions
AU - Dias, J C
AU - Shackleton, M B
PY - 2008
Y1 - 2008
N2 - Using the so-called mean-reverting square-root process of Cox et al. (1985b) we generalize the work of Dias and Shackleton (2005) by introducing the mean reversion feature into the economic hysteresis analysis under stochastic interest rates and show that such issue highlights a tendency for a widening effect on the range of inaction, though both thresholds have risen when compared with the no mean-reverting case. In addition, using the work of Linetsky (2004) we compute the hitting time densities in order to have an idea of how long does it take for a current interest rate to revert and hit the investment thresholds that would induce idle firms to invest.
AB - Using the so-called mean-reverting square-root process of Cox et al. (1985b) we generalize the work of Dias and Shackleton (2005) by introducing the mean reversion feature into the economic hysteresis analysis under stochastic interest rates and show that such issue highlights a tendency for a widening effect on the range of inaction, though both thresholds have risen when compared with the no mean-reverting case. In addition, using the work of Linetsky (2004) we compute the hitting time densities in order to have an idea of how long does it take for a current interest rate to revert and hit the investment thresholds that would induce idle firms to invest.
KW - Real options
KW - interest rate uncertainty
KW - perpetuities
KW - investment hysteresis
KW - mean reversion
KW - hitting time densities
M3 - Working paper
T3 - Accounting and Finance Working Paper Series
BT - Economic hysteresis effects and hitting time densities for CIR diffusions
PB - The Department of Accounting and Finance
CY - Lancaster University
ER -