This paper develops models for discount rates that are adjusted for the interest tax shields of an infra-marginal firm in a general tax equilibrium where there is cross-sectional variation in corporate tax rates. Under the assumption that the firm optimally maintains a predetermined debt ratio,...

This paper analyzes a power plant powered by two General Electric LM6000 gas turbines combined with a steam generator that allows combined cycle operations. We consider four distinct operating modes for the plant. Such a plant can be characterized as a real option on a spark spread: optimally...

Giaccotto et al. [2007. Journal of Finance 62, 411-445] provide a simple model for pricing the cancellation and the purchase options typically embedded in automobile lease contracts, assuming constant interest rates. They show that the cancellation option is worthless because of a penalty...

In recent years, Germany has significantly increased its share of electricity produced from renewable sources, which is mainly due to the Renewable Energy Act (EEG). The EEG substantially impacts the dynamics of intra-day electricity prices by increasing the likelihood of negative prices. In...

A binomial lattice approach is proposed for valuing options whose payoff depends on multiple state variables following correlated geometric Brownian processes. The proposed approach relies on two simple ideas: a log-transformation of the underlying processes, which is step by step consistent...

We propose a numerical approach for structural estimation of a class of discrete (Markov) decision processes emerging in real options applications. The approach is specifically designed to account for two typical features of aggregate data sets in real options: the endogeneity of firms'...