Motivated by recent evidence on the possibility of jumps in carbon dioxide emission levels and abrupt increases in pollutant-related socio-economic costs, this paper uses a real options approach to examine their impact with respect to the optimal timing of environmental policies and the optimal...

Real options are now widely used in finance for the analysis of irreversible decisions under uncertainty. However, the applicability of this approach is typically limited by the fact that a key input, the volatility level, has to be approximated and estimated using only a handful of historical...

This article considers the implications of volatility estimation risk in real options theory. We construct confidence intervals for critical project values and options prices. An empirical example in lease investment evaluation for an offshore petroleum tract shows that confidence intervals can...

This paper uses a real options approach to examine the impact of abrupt increases in carbon dioxide emissions and pollutant-related socio-economic costs. It derives optimal investment rules in the form of critical values for both pollutant stock levels and social costs, above which environmental...

The purpose of this paper is to demonstrate in a simple framework how decision tree analysis (DTA) and real options approach (ROA) yield the same results when markets are complete. The common scepticism regarding DTA has its roots in the incorrect assumption that one can apply the same discount...