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Financial/Actuarial Mathematics Seminar

Capacity Expansion Games with Application to Competition in Power Generation Investments
Wednesday, September 13, 2017
4:00-5:00 PM
1360 East Hall Map
We consider competitive capacity investment for a duopoly of two
distinct producers. The producers are exposed to stochastically fluctuating
costs and interact through aggregate supply. Capacity expansion is
irreversible and modeled in terms of timing strategies characterized through
threshold rules. Because the impact of changing costs on the producers is
asymmetric, we are led to a non-zero-sum timing game describing the
transitions among the discrete investment stages. Working in a
continuous-time diffusion framework, we characterize and analyze the
resulting Nash equilibrium and game values. Our analysis quantifies the
dynamic competition effects and yields insight into dynamic preemption and
over-investment in a general asymmetric setting. A case-study considering
the impact of fluctuating emission costs on power producers investing in
green and fossil-fuel plants is also presented. Joint work with Rene Aid
(Paris Dauphine) and Liangchen Li (UCSB). Speaker(s): Mike Ludkovski (UCSB)
Building: East Hall
Event Type: Workshop / Seminar
Tags: Mathematics
Source: Happening @ Michigan from Department of Mathematics