R&D is often a highly uncertain venture where experiments achieve successful outcomes on an extraordinarily rare basis. Just one successful product could change the future of a company; the discovery stage can often be an invaluable or disastrous experience. We develop a real R&D option model...

Governments and corporations frequently auction assets with embedded real options using both cash and contingent bids. I characterize equilibrium bidding and option exercise strategies, and find that the moral hazard associated with uncontractible investment timing inefficiently and...

Stocks with high idiosyncratic volatility perform poorly relative to low idiosyncratic volatility stocks. We offer a novel explanation of this anomaly based on real options, which is consistent with earlier findings on idiosyncratic volatility (the positive contemporaneous relation between...

We develop a behavioral theory of real options that relaxes the informational and behavioral assumptions underlying applications of financial options theory to real assets. To do so, we augment real option theory's focus on uncertain future asset values (prospective uncertainty) with feedback...

In recent years, financial regulators have come under increasing judicial scrutiny for conducting inadequate cost/benefit assessments in advance of significant reforms. One facet of this scrutiny is judicial skepticism towards the proper role for regulatory experimentation (and the real option...

Purpose - The purpose of this article is to propose a detailed methodology to estimate, model and incorporate the non-constant volatility onto a numerical tree scheme, to evaluate a real option, using a quadrinomial multiplicative recombination. Design/methodology/approach - This article uses...