Dynamic games in management science with interest rate uncertainty

Abstract

This paper incorporates interest rate uncertainty in differential games applied in management science. A solution mechanism for games with uncertain interest rates is developed, and a novel characterizing the solution is established. This is the first time differential games with uncertain interest rates are developed and solved. An application in commercial resource extraction is provided. In particular, the impact of interest rate variations on the value of the firm is presented in a dynamic game framework. Numerical illustrations and computer generated results are presented. The analysis is also extended to cases with stochastic dynamics.