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We develop real rainbow option models to value an operating asset with the flexibility to choose between two commodity outputs. We provide a quasi-analytical solution and a numerical lattice solution to a model with continuous switching opportunities between two commodity outputs, taking into...
Persistent link: https://www.econbiz.de/10010824366
Birth and death may be a better model than Brownian motion for many physical processes, which real options models will increasingly need to deal with. In this paper, we value a perpetual American call option, which gives the monopoly right to invest in a market in which the number of active...
Persistent link: https://www.econbiz.de/10005438027
Recent evidence suggests that future performance is predictable from past performance, that is, funds with superior (inferior) performance in the past are likely to remain good (bad) performers in the future. This research addresses the persistence of mutual fund performance in a European...
Persistent link: https://www.econbiz.de/10005471899
We provide an alternative analytic approximation for the value of an American option using a confined exponential distribution with tight upper bounds. This is an extension of the Geske and Johnson compound option approach and the Ho et al. exponential extrapolation method. Use of a perpetual...
Persistent link: https://www.econbiz.de/10005471975
This article evaluates Tourinho's (1979b) work as one of the earliest contributors to the real options literature. His model pioneered the application of risk neutrality to uncertain investments, but his originality of introducing an option-holding cost albeit to overcome the extraction paradox...
Persistent link: https://www.econbiz.de/10010824371
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...
Persistent link: https://www.econbiz.de/10011052788
Before taking strategic actions in property investments, consider the type and number of expansion, contraction and suspension alternatives and the future profit volatility. The optimal investment strategy for a current or prospective property owner should reflect the expected variability of...
Persistent link: https://www.econbiz.de/10005716667
Property development activities often occur in stages, which are appropriately modeled as sequential American exchange property options, where there are interim expenditures required in order to keep the property development options “alive”. Normally American exchange options require a...
Persistent link: https://www.econbiz.de/10005716729
Os modelos de estabelecimento de preços para opções pressupõem que estas podem ser replicadas através de processos de cobertura dinâmica (dynamic hedging) no activo subjacente. Habitualmente o hedger assume uma posição longa no activo subjacente em quantidade igual ao delta de uma...
Persistent link: https://www.econbiz.de/10008527453
Persistent link: https://www.econbiz.de/10005301222