In this paper, we consider a décision-maker facing a financial risk flanked by a backgroundrisk, possibly non-financial, such as health or environmental risk. A decision has to be madeabout the amount of an investment (in the financial dimension) resulting in a future benefiteither in the same...

The authors analyze the optimal replacement of assets under continuous and discontinuoustechnological change. They investigate the variable lifetime of assets in an infinite-horizonreplacement problem. Due to deterioration, the maintenance cost increases when the assetbecomes older. Because of...

In this article we analyze firms investment incentives in liberalized electricity markets. Sinceelectricity is economically non storable, it is optimal for firms to invest in a differentiatedportfolio of technologies in order to serve strongly fluctuating demand. Prior to theLiberalization of...

We analyze the impact of a uniform price cap at electricity spot markets on firms investmentdecisions and on welfare. Since investment decisions for those markets are taken in the longrun, fluctuating demand at the spot market eventually gives rise to high price spikes in case ofbinding...

This paper develops a tractable real options framework to analyze the eects of asym-metric information on investment and nancing decisions when rms require externalfunds to nance investment. Our analysis shows that corporate insiders can signal theirprivate information to outside investors using...

This paper examines the effects of capital gains taxation on firms’ investmentand financing decisions. We develop a real options model in which the timing ofinvestment, the decision to default, and the firm’s capital structure are endogenouslyand jointly determined. Our analysis demonstrates...

We study the influence of systematic probability misestimation on complexfinancial investment decisions on the context of structured financialproducts. Structured products have in recent years become more and morecomplex. We study the question whether this complexity might be a...

The bidder who wins at an auction may end up paying more for an asset than it is actually worth. This, stated very simply, is the so-called winner's curse. Consider the simplest possible case where the asset has the same actual value to all bidders, but bidders do not know for certain what that...

In this paper we examine the theoretical conditions under which a firm will have incentives to optimallychoose investment projects of duration that deviates from its stated horizon objective. Our approachconsiders a context in which investment horizon is subject to randomness and its length is...

We test the hypotheses that, in presence of financial constraints, a low leverage policy directed at maintaining financial flexibility can affect company investment. Low leverage is defined according to deviations from target which are estimated via GMS-SYS. Our analysis reveals that, following...