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Real Options, Risk Aversion and Markets : A Corporate Finance Perspective

Ewald, Christian-Oliver - 2020

We analyze how the presence of financial markets effects the optimal exercise of real options for a risk averse agent. In this process we examine the role of the minimal martingale measure and the Capital Asset Pricing Model (CAPM). Using value-matching and smooth-pasting conditions, we...

Persistent link: https://www.econbiz.de/10012850828

Real Options with Overextrapolation

Peng, Jiaxin - 2023

This study incorporates the overextrapolation belief into the classic real options model. Using the stochastic dynamic programming method, we obtain the semiclosed-form solutions for the optimal investment and valuation of real options and the welfare loss owing to overextrapolation. The...

Persistent link: https://www.econbiz.de/10014356146

A real option perspective on valuing gas fields

Zhao, Lin; Wijnbergen, Sweder van - 2013

Persistent link: https://www.econbiz.de/10010191285

Valuing Real Options with Scale-dependent Payoff

Choi, Kyoung Jin; Kwak, Minsuk - 2021

This study investigates irreversible investment decisions when the exercise payoff is scale-dependent; thus, it is endogenously determined by the firm's risk management. We find that the scale-dependency gives rise to a speculative risk management strategy: a positive relationship between the...

Persistent link: https://www.econbiz.de/10013213301

Learning, Pricing, Timing and Hedging of the Option to Invest for Perpetual Cash Flows with Idiosyncratic Risk

Song, Dandan - 2014

The paper considers the option of an investor to invest in a project that generates perpetual cash flows, of which the drift parameter is unobservable. The investor invests in a liquid financial market to partially hedge cash flow risk and estimation risk. We derive two 3-dimensional non-linear...

Persistent link: https://www.econbiz.de/10013062800

Learning, pricing, timing and hedging of the option to invest for perpetual cash flows with idiosyncratic risk

Song, Dandan; Wang, Huamao; Yang, Zhaojun - In: Journal of mathematical economics 51 (2014), pp. 1-11

Persistent link: https://www.econbiz.de/10010478603

Optimal Hedging of a Contingent Claim with Ambiguity Aversion

Hyun, Chongseok - 2012

We propose a model of hedging and investment with ambiguity aversion in an incomplete financial market. We show that … hypothesis: an ambiguity averse agent chooses higher volatility when hedging a derivative position whose payoff function is … convex than when hedging a position whose payoff function is concave. Our model can be extended to accommodate non …

Persistent link: https://www.econbiz.de/10013103139

Option Hedging with Risk Averse Reinforcement Learning

Vittori, Edoardo - 2020

-of-the-art risk-averse algorithm: Trust Region Volatility Optimization (TRVO) to a vanilla option hedging environment, considering …-p&l space.The results show that the derived hedging strategy not only outperforms the Black & Scholes delta hedge, but is also …

Persistent link: https://www.econbiz.de/10012823134

Implementing real options valuation under macroeconomic risk and normally distributed cash flows

Instefjord, Norvald; Kenç, Turalay - In: International econometric review 16 (2024) 1, pp. 50-67

The paper highlights the encountered problems in implementing real options under more realistic assumptions such as business cycle risk and normally distributed cash flows. The problems considered include (i) estimating empirical distribution of cash flows from real option investments; (ii)...

Persistent link: https://www.econbiz.de/10015375466

On the Investment-Uncertainty Relationship in a Real Option Model with Stochastic Volatility

Ting, Sai Hung Marten - 2012

We consider the classical investment timing problem in a framework where the instantaneous volatility of the project value is itself given by a stochastic process, hence lifting the old question about the investment-uncertainty relationship to a new level. Motivated by the classical cases of...

Persistent link: https://www.econbiz.de/10013114717