This paper investigates whether the overpricing of out-of-the money single stock calls can be explained by Tversky and Kahneman's (1992) cumulative prospect theory (CPT). We argue that these options are overpriced because investors' overweight small probability events and overpay for such...

We apply utility indifference pricing to solve a contingent claim problem, valuing a connected pair of gas fields where the underlying process is not standard Geometric Brownian motion and the assumption of complete markets is not fulfilled. First, empirical data are often characterized by...

This paper shows that the presence of conditional staging in R&D (Research & Development) has a critical impact on portfolio risk, and changes diversification arguments when a portfolio is constructed. When R&D projects exhibit option-like characteristics, correlation between projects plays a...

We investigate the relationship between the gas spot market and the price of gas storage capacity. Contrary to the common belief, the auction prices for gas storage are mostly affected by the volatility of current market prices rather than by the winter-summer price differences. This paper...

I show that the irreversibility of dying coupled with gradual information acquisition over time on the likely arrival and eventual effectiveness of vaccines confers a real option value to lockdown strategies that delay the incidence of a pandemic.The case for lockdown strategies becomes stronger...

Urban structures and urban growth rates are highly persistent. This has far-reaching implications for the optimal size and timing of new construction. We prove that rational developers postpone construction not because prospects are gloomy, but because they are bright. The slow mean reversion in...

Large data sets in finance with millions of observations have becomewidely available. Such data sets enable the construction of reliablesemi-parametric estimates of the risk associated with extreme pricemovements. Our approach is based on semi-parametric statisticalextreme value analysis, and...

Classic real options theory rests on two debatable assumptions: projects require a fixed investment and generate cash flows that follow a random walk. Relaxing both assumptions leads to radically different conclusions regarding the optimal timing of investment. We model investment using a...

This paper explores the contagious propagation of jumps among international stock market indices by exploiting a rich panel of stock and options data. We propose a multivariate option pricing model designed to allow for, but not superimpose, time and space amplification of jumps in option...