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Corporate Optimal Investment Under Incomplete Information: A Real Option Method

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  • Mondher Bellalah
  • Shujuan Ding
  • Zhen Wu
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    Abstract

    This paper develops an option pricing model to value a project with taxes and incomplete information. We derive the value of the option to invest in the project and provide the threshold value of the project. Some numerical examples are given to show the characteristics of the optimal investment rule.

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    File URL: http://www.rfb.ase.ro/articole/articol1.pdf
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    Bibliographic Info

    Article provided by Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante in its journal The Review of Finance and Banking.

    Volume (Year): 04 (2012)
    Issue (Month): 1 (June)
    Pages: 007-014

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    Handle: RePEc:rfb:journl:v:04:y:2012:i:1:p:007-014

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    1. Black, Fischer, 1974. "International capital market equilibrium with investment barriers," Journal of Financial Economics, Elsevier, vol. 1(4), pages 337-352, December.
    2. Kang, Jun-Koo & Stulz, Rene M., 1997. "Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan," Journal of Financial Economics, Elsevier, vol. 46(1), pages 3-28, October.
    3. Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, vol. 8(4), pages 500-524, August.
    4. Bellalah, Mondher & Jacquillat, Bertrand, 1995. "Option Valuation with Information Costs: Theory and Tests," The Financial Review, Eastern Finance Association, vol. 30(3), pages 617-35, August.
    5. Rudiger Dornbusch, 1980. "Exchange Rate Risk and the Macroeconomics of Exchange Rate Determination," NBER Working Papers 0493, National Bureau of Economic Research, Inc.
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