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    Optimal Stopping Rule for a Project with Uncertain Completion Time and Partial Salvageability

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    2Chi1997IIIE.pdf (671.7Kb)
    Issue Date
    1997
    Author
    Chi, Tailan
    Publisher
    IEEE
    Type
    Article
    Article Version
    Scholarly/refereed, author accepted manuscript
    Published Version
    http://ieeexplore.ieee.org/stamp/stamp.jsp?tp=&arnumber=552808&userType=inst
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    Abstract
    In this paper, we developed an optimal stopping model for the control of an investment project that takes an uncertain length of time to develop and can still provide a partial payoff even if it is terminated without achieving its original performance objectives. We first investigated the solution of the model under a specific set of assumptions about the forms of the functions that characterize the uncertainty about the project and the buildup of its value. An analytical solution was derived for the special case where the discount rate is zero, and numerical solutions were obtained for the general case where the discount rate is allowed to be positive. Using the insights from the solution under the specific set of assumptions, we then examined the solutions of the model under alternative assumptions about those component functions. Our results suggest that the optimal control policy is quite sensitive to how the terminal payoff evolves in a project’s development process, pointing to the importance of carefully accounting for its impact in determining the control policy for this kind of project. Finally, we also suggested methods for estimating the forms of the component functions that characterize the uncertainty about the project and the buildup of its value.
    Description
    This is the author's final draft. The publisher's official version is available from:http://ieeexplore.ieee.org/stamp/stamp.jsp?tp=&arnumber=552808&userType=inst
    URI
    http://hdl.handle.net/1808/11014
    Collections
    • Center for East Asian Studies Scholarly Works [351]
    • School of Business Scholarly Works [213]
    Citation
    Chi, Tailan. (1997) Optimal Stopping Rule For a Project With Uncertainty Completion Time and Partial Salvageability. IEEE Transactions on Engineering Management, 44 (1), 54-66.

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    Contact KU ScholarWorks
    785-864-8983
    KU Libraries
    1425 Jayhawk Blvd
    Lawrence, KS 66045
    785-864-8983

    KU Libraries
    1425 Jayhawk Blvd
    Lawrence, KS 66045
    Image Credits
     

     

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