Valuing Finite-Maturity Investment-Timing Options
AbstractThe investment-timing option (ITO) provides the ability to postpone rather than immediately implement or reject a capital budgeting process. It can significantly increase a project's value. A method for computing the value of an ITO for a postponable project with a finite maturing is presented. The effect of time until expiration on hurdle rates and the option to defer or reject the investment are also investigated.
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Bibliographic InfoArticle provided by Financial Management Association in its journal Financial Management.
Volume (Year): 26 (1997)
Issue (Month): 2 (Summer)
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- Armada, Manuel Rocha & Kryzanowski, Lawrence & Pereira, Paulo Jorge, 2007. "A modified finite-lived American exchange option methodology applied to real options valuation," Global Finance Journal, Elsevier, vol. 17(3), pages 419-438, March.
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- Giovanni Villani, 2009. "A Strategic R&D Investment with Flexible Development Time in Real Option Game Analysis," CESifo Working Paper Series 2728, CESifo Group Munich.
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