DRIFFILL, JOHN; KENC, TURALAY; SOLA, MARTIN - In: International Journal of Theoretical and Applied … 16 (2013) 05, pp. 1350028-1
We develop a model of regime-switching risk premia as well as regime-dependent factor risk premia to price real options. The model incorporates the observation that the underlying risky income streams of real options are subject to discrete shifts over time as well as random changes. The...