The paper derives a valuation formula for the real option of a firm to undertake an irreversible investment in a foreign economy based on the endogenous dynamics of a stochastic macroeconomic framework with sluggish price adjustment. The option valuation formula is implemented to analyze the...

Capital flight has characterized the transformation process in Russia. Inflows of foreign direct investment have been minor and have been preceeded by inflows of portfolio capital. The paper shows that uncertainty about macroeconomic stabilization exhibits a strong negative effect on the volume...