This article studies how sensitive real option valuations are to incorrect assumptions about the stochastic process followed by the state variables. We design a valuation model which combines Monte Carlo simulation and dynamic programming and provides an appropriate framework to evaluate the...

This paper aims to examine how investors' expectations about the value of a firm's real options are reflected in the price of its stocks. If the real-option approach is correct, then the efficient-market hypothesis predicts that stock prices will reflect the available information relative to the...