Journal article
The effect of mean reversion on investment under uncertainty
Abstract
Mean-Reverting processes are appropriate for most “real option” investment models, yet Geometric Brownian Motion (GBM) processes are generally used for tractability. Hassett and Metcalf (J. Econom. Dyn. Control 19 (1995) 1471–1488) argue that using a GBM process is justified because mean-reversion has two opposing effects—it brings the investment trigger closer, and also reduces the conditional volatility (thereby lowering the likelihood of …
Authors
Sarkar S
Journal
Journal of Economic Dynamics and Control, Vol. 28, No. 2, pp. 377–396
Publisher
Elsevier
Publication Date
November 2003
DOI
10.1016/s0165-1889(02)00181-1
ISSN
0165-1889