This paper is an introduction to the concepts and methods used in the field of real options as they relate to investments. The analog between financial and real options is explained. The discrete version of a model is introduced, then solutions to the canonical model in continuous time using...

This paper addresses the issue of how regulatory constraints affect firm's investment choices when the firm has an option to delay investment. The RPI-x rule is compared to a profit sharing rule, which increases the x factor in case profits go beyond a given level. It is shown that a pure price...

In this article we analyse the effects of different regulatory schemes (price cap and profit sharing) on a firm's investment of endogenous size. Using a real option approach in continuous time, we show that profit sharing does not affect a firm's start-up decision relative to a pure price cap...

A game in which an incumbent and an entrant decide the timings of entries into a new market is investigated. The profit flows involve two uncertain factors: (1) the basic level of the demand of the market observed only by the incumbent and (2) the fluctuation of the profit flow described by a...

I address the interaction between accounting conservatism and real options in both a staged investment and abandonment model. An accounting policy biased towards classifying a Good (Bad) project as Bad (Good) is conservative (aggressive). The accounting signal is optimally conservative when the...

Using real options framework I analyze investment in base load coal fired power plant. Analysis is done using real options framework and assuming option to invest is a perpetual American option. I assume profitability of the power plant depends upon the value of dark spread. The paper has two...

Telecommunications carriers are deploying the so called New Generation Access (NGA) networks. These networks consist in substituting the last part of the network (the one that ends in the premises of the client) with optical fiber. This part of the network used to be made of copper. The...

Avian flu has been the focus of significant attention since 2004, when there were reports of human infections in Asia from the avian flu H5N1 strain. To prevent the catastrophic mortality of mankind, several governments are stockpiling antivirals and pharmaceutical firms are increasing their...

The problem of irreversible investment with idiosyncratic risk is studied by interpreting market incompleteness as a source of Knightian uncertainty over the appropriate discount factor. Maxmin utility over multiple priors is used to solve the irreversible investment problem. The notion of...