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....

Real options models consider an investment project where the economic environment is uncertain. The uncertainty is integrated through stochastic processes to model the evolution of underlying variables that determine the value of an investment opportunity. Establishing the uniqueness of the...

This paper considers a firm's investment decision determining the timing and capacity level in a dynamic setting with demand uncertainty. Its investment is financed by borrowing from a lender that has market power, generating a capital market inefficiency. We show that the firms's investment is...