Communications in Mathematical Finance

Impacts of a regime switching (elections) in investment

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  • Abstract

    In this paper, we assess the impact on the timing of investment and option value for green energy company after election. For this fact, many parameters were taken into consideration such as the discount rate, the investment cost,the mean reversion speed, the mean reversion level, the uncertainty parameter, etc. The distribution of ? (advantages on the biological fuel due to the taxes system that can tolerate the use of it) after election is not known and is assumed to be uniformly distributed(Laplaces insufficient reason criterion). The simulation study was conducted and the optimal investment time together with the option value for the company were found considering the subsidies and lower taxes that can be made depending on regime switching.

    Keywords: Investment; Real options; Uniform distribution; Prices; Ambiguity