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...

This paper describes a real options valuation method for situations where the underlying asset may have negative values and the underlying project present value distribution is something of the shape between normal and lognormal distribution causing skewness to the rate of return distribution....

We examine the impact on an R&D valuation and its investment timing of abrupt events, options facing paradise (blockbusters) and purgatory (catastrophes). We show that the presence of a special case of Lévy jumps can model positive and negative effects in the investment opportunity even when...

This paper presents a practical volatility estimation method for cash flow simulation based real option valuation with changing volatility. During cash flow simulation, present value of the future cash flows and their corresponding cash flow state variable values are recorded for all time...

This paper investigates the value of protective abandon put option from the equity holder's perspective of a large and a small company. Motivation for this topic arises from the perception that certain market imperfections related to corporate and personal taxes tend to favor a large firm and...

A method for handling the problem of financial mission statement has been suggested to evaluate effects of projected upgrading equipment of a manufacturing company. For this end, such project is analyzed as an Asian real option with constant business volatility. The problem is solved using the...

Based on panel data of 214 licenses to construct small hydropower plants, we examine whether uncertainty with respect to the introduction of a market for renewable energy certificates affected the timing of investments in Norway from 2001 to 2010. Using regression analysis, we find that (1)...

This paper establishes a degree of influence between an inflation rate and a risk-free investment rate on the precision of estimated value of an Asian real option. It has been shown with an example that in the event of advancing by the inflation rate beyond profitability of risk-free...

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...

In this note a general model of optimal hedging is studied which emcompasses most other existing hedging models. Assuming a convex form of the function of deadweight costs, the optimal hedging strategy is discussed. An analogy to the analysis of behavior towards risk of an expected utility...