R&D is often a highly uncertain venture where experiments achieve successful outcomes on an extraordinarily rare basis. Just one successful product could change the future of a company; the discovery stage can often be an invaluable or disastrous experience. We develop a real R&D option model...

Avian flu has been the focus of significant attention since 2004, when there were reports of human infections in Asia from the avian flu H5N1 strain. To prevent the catastrophic mortality of mankind, several governments are stockpiling antivirals and pharmaceutical firms are increasing their...

This study evaluates two one‐factor, two two‐factor, and two three‐factor implied volatility functions in the HJM class, with the use of eurodollar futures options across both strike prices and maturities. The primary contributions of this article are (a) to propose and test three implied...

This study investigates the structure of the implied volatility smile, using the prices of equity options traded on the LIFFE. First, the slope of the implied volatility curve is significantly negative for both individual stocks and index options, and the slope is less negative for longer‐term...

We study the combined effects of revenue and cost uncertainty as well competition on the timing optimization of investments in complementarity inputs for duopoly markets where either spillover-knowledge is allowed or where proprietary-knowledge holds. For some input-sequencing investment...

We formulate a multi-factor real option duopoly game model to determine the optimal times to divest the incumbent technology or to switch to a new smaller-scale and lower operating cost technology, with an uncertain output price, and declining output. The formulation takes two alternative forms:...

By mixing concepts from both game theoretic analysis and real options theory, an investment decision in a competitive market can be seen as a "game" between firms, as firms implicitly take into account other firms' reactions to their own investment actions. We review two decades of real option...

We develop a model for determining the optimal timing and capacity choice of investment under floors and ceilings (collars). We study how a welfare maximizing finite-lived collar can be optimally designed. Our findings show that for a linear demand function, multiple collar arrangements are...

Real options have been growing in popularity in recent years, and this has been accompanied by improvements in their modelling and valuation. Real options enable companies or managers to value projects more accurately by incorporating managerial flexibilities into the valuation model. This is in...

Fixed rate endowment mortgages differ from fixed rate repayment mortgages primarily because, in the event of early termination, the amount owed by the borrower is a function of the evolution of the term structure of interest rates, whereas for a repayment mortgage it is pre-determined.We use a...