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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/14196
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| Title: | Profit Maximization with Bankruptcy and Variable Scale |
| Authors: | Radner, Roy |
| Issue Date: | Aug-1996 |
| Publisher: | Stern School of Business, New York University |
| Series/Report no.: | IS-96-07 |
| Abstract: | In a diffusion model of an enterprise with variable scale, sufficient
conditions are given for the maximization of expected profit (expected
total discounted withdrawals) to lead to eventual bankruptcy with
probability one. The optimal withdrawal policy is an "overflow
policy," in which the withdrawal rate is equal to zero if the asset
level is below a "barrier," and equal to the maximum rate if
the asset level is greater than or equal to the barrier. The optimal
policy for the control of the drift (yield) and volatility (risk) of the
earnings process is derived as the solution of a differential equation,
and a formula is given for the corresponding value function. The
optimality of the constructed policy is demonstrated using the standard
"Bellman Conditions." |
| URI: | http://hdl.handle.net/2451/14196 |
| Appears in Collections: | IOMS: Information Systems Working Papers
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