In a model with stochastic interest rates, irreversible investment, and two investment dates, the value of investment delay has two components: the expected gain from committing now to investment at a future date and the potential gain from the ability to reverse this commitment. Holding net...

We analyze the dynamic investment decision of a firm subject to an endogenous financing constraint. The threat of future funding shortfalls lowers the value of the firm's timing options and encourages acceleration of investment beyond the first-best optimal level. As well as highlighting another...

Racehorse trainers operate unregulated asset management businesses in which the assets owned by outside clients compete with those owned by trainers for the latter’s time, care, and attention. However, market mechanisms appear to deal effectively with the resulting agency problem in situations...

Popular investment advice recommends that stock/bond and stock/wealth ratios should rise with investor risk tolerance and investment horizon respectively, prescriptions that are difficult to reconcile with the simple mean-variance model. We show that extending the mean-variance model to include...

A problem that often arises in applied finance is one where decision-makers need to choose a value for some parameter that will affect the cash flows between two parties involved in the operation of an illiquid asset. Because the values of the cash flows also depend on various unobservable...

We analyze the optimal hedging policy of a firm that has flexibility in the timing of investment. Conventional wisdom suggests that hedging adds value by alleviating the underinvestment problem associated with capital market frictions. However our model shows that hedging also adds value by...

A problem that often arises in applied finance is one where decision-makers need to choose a value for some parameter that will affect the cash flows between two parties such as a rental rate or an exercise price. Because the values of the cash flows also depend on various unobservable...

In September 2005 the New Zealand Commerce Commission (NZCC) released a document (TheWeighted Average Cost of Capital for Electricity Lines Businesses by Dr Martin Lally referred to as LINES hereafter) that estimates a weighted average cost of capital (WACC) for New Zealand electricity lines...

Racehorse trainers operate asset management businesses in which the assets owned by outside clients compete with those owned by managers for the latter's time care and attention. Although this potentially leads to serious conflicts of interest we find no evidence of an agency problem: in a...