Although bonds are less volatile than equities and the median bond fund holds about 200 bonds, bond investors still need to hold more than one bond fund to realize the optimal benefit of diversification. The simulation results show that three to five bond funds reduce standard deviation of...

This paper considers investment problems in real options with non-homogeneous two-factor uncertainty. We derive some analytical properties of the resulting optimal stopping problem and present a finite difference algorithm to approximate the firm’s value function and optimal exercise boundary....