Generators supplying electricity markets are subject to volatile input and output prices and uncertain fuel availability (water flows in the case of hydro and gas availability in the case of thermal plants). We show that a price-taking generator will only generate when the output price exceeds...

This paper surveys the theoretical literature investigating the effect of firms' investment flexibility on the cross-section of expected stock returns. Real options analysis derives firms' value-maximizing investment policies as functions of exogenous fundamental drivers of profitability and...