Real option theory has remained a fringe field; practitioners believe it is not practically applicable in complex real … world environments. We show that this view is mistaken. We apply real option theory to a highly complex energy problem with … unhedgeable risk, time varying volatilities and endogenous exercise dates (non-European options). Investment decisions in the …

. Real option theory argues that research projects with conditional phases have option-like risk and return properties, and … portfolio risk, and changes diversification arguments when a portfolio is constructed. When R&D projects exhibit option … are different from unconditional projects. We show that although the risk of a portfolio always depends on the correlation …

claims are exposed to undiversifiable risk, sovoters with small financial stakes may prefer lender (or large share …-holder) dominance, as they choose lower risk strategies. The modelmay explain the "great reversal" phenomenon in the first half of the20 … as a finan-cially weakened middle class became concerned about income risk.We offer evidence using post WW1 inflationary …

ofthis theory of capital structure evolution is that optimal capital structure is essentiallydynamic, and depends on the firm …’s stock price, implying that firms issue equity when stockprices are high and debt when stock prices are low. The theory … testablepredictions. Moreover, the theory can rationalize the use of debt in the absence of taxes,agency costs or signaling considerations. …

salability of tangible assets. Theory suggests that tangibility increases borrowingcapacity because it allows creditors to more …

Credit risk models should reflect the observation that the relevant value of collateral is generally not the average … latent factors driving recovery risk and default risk are estimated using a Bayesian MCMC algorithm. We find that the …