Economic hysteresis effects and hitting time densities for CIR diffusions

Dias, J C and Shackleton, M B (2008) Economic hysteresis effects and hitting time densities for CIR diffusions. Working Paper. The Department of Accounting and Finance, Lancaster University.

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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.

Item Type:
Monograph (Working Paper)
Uncontrolled Keywords:
?? real optionsinterest rate uncertaintyperpetuitiesinvestment hysteresismean reversionhitting time densitiesdiscipline-based research ??
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Deposited On:
11 Jul 2011 21:21
Last Modified:
02 Mar 2024 01:51