A contingent claims approach to capital budgeting may be preferable to traditional methods where uncertainty and managers' strategic reactions to changing conditions are important. As an example of such a case, we solve the classical problem of the duration of an investment in forestry resources...

In this article we develop a model to analyze patent-protected Ramp;D investment projects when there is (imperfect) competition in the development and marketing of the resulting product. The competitive interactions that occur substantially complicate the solution of the problem since the...

We develop a real options model of Ramp;D valuation that takes into account the uncertainty in the quality (or efficacy) of the research output, the time and cost to completion, and the market demand for the Ramp;D output. The model is then applied to study the problem of pharmaceutical...

Commodity derivatives are becoming an increasingly important part of the global derivatives market. Here we develop a tractable stochastic volatility model for pricing commodity derivatives. The model features unspanned stochastic volatility, quasi-analytical prices of options on futures...

The presence of illiquid assets, such as human wealth or a family owned business, complicates the problem of portfolio choice. This paper is concerned with the problem of optimal asset allocation and consumption in a continuous time model when one asset cannot be traded. This illiquid asset,...

This article develops and implements a simulation approach to value patents and patent-protected Ramp;D projects based on the Real Options approach. It takes into account uncertainty in the cost-to-completion of the project, uncertainty in the cash flows to be generated from the project, and the...

Personal preferences and financial incentives make homeownership desirable for most families. Once a home is purchased they find it impractical (costly) to frequently change their ownership of residential real estate. Thus, by deciding how much home to buy, a family constrains their ability to...

Although traded as distinct products, caps and swaptions are linked by no-arbitrage relations through the correlation structure of interest rates. Using a string model framework, we solve for the correlation matrix implied by the swaptions market and examine the relative valuation of caps and...

The economic and political changes which are taking place in Europe affect interest rates. This paper develops a two-factor model for the term structure of interest rates specially designed to apply to EMU countries. In addition to the participant countries' short-term interest rate, we include...