Jeon, Haejun; Nishihara, Michi - In: Finance Research Letters 11 (2014) 4, pp. 398-409
We propose a model of a firm’s reversible investment decision with macroeconomic conditions based on optimal switching of a diffusion regime. The switching costs and the cash flow generated from the firm depend on a business cycle alternating via a Markov chain, and the triggers of investment...