This paper considers investment problems in real options with non-homogeneous two-factor uncertainty. It shows that, despite claims made in the literature, the method used to derive an analytical solution in one dimensional problems cannot be straightforwardly extended to problems with two...

This paper considers investment problems in real options with non-homogeneous two-factor uncertainty. We derive some analytical properties of the resulting optimal stopping problem and present a finite difference algorithm to approximate the firm’s value function and optimal exercise boundary....

In this paper we study the investment strategy of a firm that upon investment may produce in two alternative modes. These two modes differ in terms of the risk associated with the running payoff: one being more profitable when the market conditions are favourable but leading to larger losses in...