Seminar Event Detail

Financial/Actuarial Mathematics

Date:  Wednesday, September 13, 2017
Location:  1360 East Hall (4:00 PM to 5:00 PM)

Title:  Capacity Expansion Games with Application to Competition in Power Generation Investments

Abstract:   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).

Files: 4066_slide-MikeUmich17.pdf

Speaker:  Mike Ludkovski
Institution:  UCSB

Event Organizer:     


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