This study investigates irreversible investment decisions when the exercise payoff is scale-dependent; thus, it is endogenously determined by the firm's risk management. We find that the scale-dependency gives rise to a speculative risk management strategy: a positive relationship between the...

This paper shows that the presence of conditional staging in R&D (Research & Development) has a critical impact on portfolio risk, and changes diversification arguments when a portfolio is constructed. When R&D projects exhibit option-like characteristics, correlation between projects plays a...

We develop a dynamic model in which a firm exercises an option to expand production with cash balance and costly external funds. While related papers explain their results only by numerical examples, we analytically prove the following results. In the presence of only a proportional cost of...

We apply a contingent-claims technique and demonstrate how to value an emerging market hydro electric power investment under uncertainty. The investment project depends on reliable weather conditions and the capacity of a river to drive the water turbines. Uganda’s Bujagali dam project located...

We examine the joint optimization of financial leverage and irreversible capacity investment in a real options framework with risky debt and endogenous interest costs. Higher capacity, ceteris paribus, increases operating leverage and default probability, but lowers ex post adjustment costs and...

We analyze the real option signaling game models of debt financing of a risky project under information asymmetry, where the firm quality is only known to the firm management but not outsiders. The firm decides on the optimal investment timing of the risky project that requires upfront fixed...

The purpose of this research is to develop a cost estimation model of a project with its real options. This issue is particularly attributed to the selection of an adequate evaluation model. However, despite the high computational accuracy of a particular model, it can scarcely ever meet the...

The purpose of this paper is to apply such a technology to develop an innovation strategy for the pilot clusters defined by the state, which would allow to make flexible management decisions. The proposed method for this involves the use of a compound real option, which includes the following...

The subject of this study is the strategy of the innovative-industrial cluster. The purpose of this work is to form a cluster strategy using parallel and sequential real options. The method proposed for this involves applying a parallel real option when justifying the prospect of acquisition,...