This paper proposes a real option capacity expansion model for power generation with several technologies that differ in operation and investment costs. The economy is assumed perfectly competitive and the instantaneous payoff accruing from the generation system is the instantaneous welfare...

This paper considers the problem of the optimal timing of the exchange of the sum of n geometric Brownian motions for the sum of m others. We propose a closed form determinable stopping time based on the heuristic principle of smooth fit. We cannot prove that this stopping time is optimal....

This paper considers the general problem of optimal timing of the exchange of the sum of n Ito-diffusions for the sum of m others (e.g., the optimal time to exchange a geometric Brownian motion for a geometric mean reverting process). We first contribute to the literature by providing analytical...

This paper proposes a real option capacity expansion model for power generation with several technologies that differ in operation and investment costs. The economy is assumed perfectly competitive and the instantaneous payoff accruing from the generation system is the instantaneous welfare...

We develop a flexible multifactor stochastic model with Markov regime-switching spikes, for daily spot and forward electricity. The model captures various stylized features of power prices, including mean reversion and seasonal patterns, and short- lived spikes. Parameters are estimated through...

We take advantage of the interpretation of stochastic capacity expansion problems as stochastic equilibrium models for assessing the risk exposure of new equipment in a competitive electricity economy. We develop our analysis on a standard multistage generation capacity expansion problem. We...