This paper provides a general framework for pricing of real options in continuous time for wide classes of payoff streams that are functions of Levy processes. As applications, we calculate the option values of multi-stage investment/disinvestment problems (sequences of embedded options, which...

The goal of the paper is to study how a menu of options affects decisions of a rational agent facing uncertainty over future payoff streams. Using the real options approach, we demonstrate that multiple options not only increase the barrier which the underlying stochastic variable has to reach...

This paper is an extended version of the paper quot;Practical Guideto Real Options in Discrete Timequot; (http://ssrn.com/abstract=510324), where a general, computationally simple approach to real options in discrete time was suggested. We explicitly formulate conditions of the general theorems...

We explicitly solve the pricing problem for perpetual American puts and calls, and provide an efficient semi-explicit pricing procedure for options with finite time horizon. Contrary to the standard approach, which uses the price process as a primitive, we model the price process as the expected...

Continuous time models in the theory of real options give explicit formulas for optimal exercise strategies when options are simple and the price of the underlying asset follows a geometric Brownian motion. This paper suggests a general, computationally simple approach to real options in...

This paper presents a simple discrete time model for valuing real options. A short and simple proof of optimal exercise rules for the standard problems in the real options theory is given in the binomial and trinomial models, and more generally, when the underlying uncertainty is modelled as a...

A general framework for pricing of real options in continuous time for wide classes of payoff streams that are monotone functions of a Levy process is provided. Exercise rules are formulated in terms of statistics of record-setting low payoffs and can be viewed as an extension of Bernanke's bad...

We solve the pricing problem for perpetual American puts and calls on dividend-paying assets. The dependence of a dividend process on the underlying stochastic factor is fairly general: any non-decreasing function is admissible. The stochastic factor follows a Levy process. This specification...

For wide classes of put-like and call-like perpetual options under Levy processes satisfying the (ACP)-property, the optimal exercise price and rational option price are found. The results are formulated in terms of resolvent operators of the supremum and infimum processes, which are natural...

This paper studies pricing of perpetual American strangles under jump-diffusions. Explicit solutions for option values as functions of the exercise boundaries and the exercise boundaries as functions of the ratio between the boundaries are obtained. Calculation of the ratio of the exercise...