This paper solves the irreversible investment decision problem under uncertainty by a new real options method. It yields a Shadow Net Present Value rule such that the investment is triggered only when the shadow revenue of the investment reaches the investment cost. This paper hence corrects and...

We analyze how the presence of financial markets effects the optimal exercise of real options for a risk averse agent. In this process we examine the role of the minimal martingale measure and the Capital Asset Pricing Model (CAPM). Using value-matching and smooth-pasting conditions, we...

Autonomous demand shock affects consumption spending. Variation in consumption spending contributes to the volatility in aggregate demand. As the investor is risk averse, volatility of aggregate demand reduces investment. Government injects monetary noise to reduce the volatility in aggregate...