Entrepreneurs face significant non-diversifiable business risks. We build a dynamic incompletemarkets model of entrepreneurial firms to demonstrate the important implications of nondiversifiable risks for entrepreneurs’ interdependent consumption, portfolio allocation, financing, investment,...

Entrepreneurs face significant non-diversifiable business risks. We build a dynamic incompletemarkets model of entrepreneurial finance to demonstrate the important implications of nondiversifiable risks for entrepreneurs’ interdependent consumption, portfolio allocation, financing, investment,...

Entrepreneurs often face undiversifiable idiosyncratic risks from their business investments. Motivated by this observation, we extend the standard real options approach to investment to an incomplete markets environment and analyze the joint decisions of business investments, consumption-saving...

We investigate the implications of technological innovation and non-diversifiable risk on entrepreneurial entry and optimal portfolio choice. In a real options model where two risk-averse individuals strategically decide on technology adoption, we show that the impact of non-diversifiable risk...

This paper studies the investment timing problem of an entrepreneur with a non- tradable real option with undiversifiable risk. We find that the time preference can have a significant impact on the risk attitude toward the idiosyncratic risk, which re- sults from the wealth effect on the implied...

This paper extends real options theory to consider the situation where the mean appreciation rate of the value of an irreversible investment project is not observable and governed by an Ornstein-Uhlenbeck process. Our main purpose is to analyze the impact of the uncertainty of the mean...

This paper is an introduction to the concepts and methods used in the field of real options as they relate to investments. The analog between financial and real options is explained. The discrete version of a model is introduced, then solutions to the canonical model in continuous time using...

In the standard real options approach to investment under uncertainty, agents formulate optimal policies under the assumptions of risk neutrality or perfect capital markets. However in most situations, corporate executives face incomplete markets either because they receive compensation packages...

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...