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When the price process for a long-lived asset is of a mixed jump-diffusion type, pricing of options on that asset by arbitrage is not possible if trading is allowed only in the underlaying asset and a risk-less bond. Using a general equilibrium framework, we derive and analyze option prices when...
Persistent link: https://www.econbiz.de/10005564033
We examine the effect of changes in output uncertainty on the price of aggregate capital and on the prices of levered claims on capital. The relation between the volatility of the marginal product of capital and the price of capital depends on the level of capital adjustment costs and the...
Persistent link: https://www.econbiz.de/10005564145
A dynamic model of a multistage investment project that captures many features of research and development (R&D) ventures and start-up companies is developed. An important feature these problems share is that firms learn about the potential profitability of the project throughout its life, but...
Persistent link: https://www.econbiz.de/10005564222