Elliott, Robert J., authorMiao, Hong, authorYu, Jin, authorInternational Journal of Theoretical and Applied Finance, publisher2020-05-182020-05-182008-01-17Elliott, R., Miao, H. & Yu, J. (2009). Investment timing with regime switching. International Journal of Theoretical and Applied Finance, 12(4), 443-463. https://doi.org/10.1142/S0219024909005361https://hdl.handle.net/10217/206886Includes bibliographical references (pages 29-31).Published as: International Journal of Theoretical and Applied Finance, vol. 12, no. 4, pp. 443-463, 2009, https://doi.org/10.1142/S0219024909005361.We investigate the optimal investment timing strategy in a real option framework. Depending on the state of the economy, whose changes are modeled by a Markov chain, the investment cost can take one of two values. The optimal investment timing decision is determined by finding the free boundary of a perpetual American option. Three investment timing policies, based on different assumptions of investors' information sets, are determined and compared. In the full information case, a significantly earlier optimal exercising time is indicated. We show that an optimal-timing policy suggested by the conventional real option model might ruin the investment opportunities.born digitalarticleseng©2009 World Scientific Publishing Co Pte Ltd. https://www.worldscientific.com/page/permissions.Copyright and other restrictions may apply. User is responsible for compliance with all applicable laws. For information about copyright law, please see https://libguides.colostate.edu/copyright.regime switchingreal optioninvestment timingText