In this article we analyse the effects of different regulatory schemes (price cap and profit sharing) on a firm's investment of endogenous size. Using a real option approach in continuous time, we show that profit sharing does not affect a firm's start-up decision relative to a pure price cap...

The real options tradition originally predicted a decreasing relationship between uncertainty and investment, through the positive effect of higher uncertainty on the trigger level for revenue relative to costs. An opposing effect on the probability of reaching the level has been identified,...

This paper presents a dynamic framework which implements risk as a continuous variable into the proximity-concentration trade-of concept. Additionally firms have the possibility to postpone their investment decision which gives them the possibility to collect further information about the...

We offer a new perspective on games of irreversible investment under uncertainty in continuous time. The basis is a particular approach to solve the involved stochastic optimal control problems which allows to establish existence and uniqueness of an oligopolistic open loop equilibrium in a very...

The paper studies the interaction between cyclical uncertainty and investment in a stochastic real option framework where demand shifts stochastically between three different states, each with different rates of drift and volatility. In our setting the shifts are governed by a three-state Markov...

Exclusive rights, like mineral leases and radio spectrum licences, often hold option-like features. This occurs when licencees do not face the obligation to to develop the lease or to undertake the investment required to use the assigned spectrum. However, to avoid licences being unused for...

Employing a continuous-time real options modeling framework, this paper scrutinizes the incentives to invest in German offshore wind farms. The focus of the analysis is the mode of action of the German feed-in tariff system for offshore wind energy deployment. The numerical results reveal that...

Comparative-statics results for financial options are often assumed to hold for real options. But the effects of higher volatility need not be increased value and postponed investment. This depends on signs of correlations and what parameters are held constant. For real options, the...

We refine modelling of the radical innovation decision in this paper by extending real option theory to include non-marginal stochastic jump processes. From the model analytics we determine that the average magnitude and frequency of non-marginal stochastic jump processes are the most important...