IDEAS home Printed from https://ideas.repec.org/h/wsi/wschap/9789814273473_0004.html
   My bibliography  Save this book chapter

Real Options in a Duopoly Market with General Volatility Structure

In: Recent Advances In Financial Engineering

Author

Listed:
  • Masaaki Kijima

    (Graduate School of Social Sciences, Tokyo Metropolitan University, Japan)

  • Takashi Shibata

    (Graduate School of Social Sciences, Tokyo Metropolitan University, Japan)

Abstract

This paper considers strategic entry decisions in a duopoly market when the underlying state variable follows a diffusion with volatility that depends on the current state variable. The extension to this case is more than marginal, since empirical studies have suggested that the volatility is indeed non-constant in real options practices. It is shown that, even in the extended model, three types of equilibria exist in the case of strategic substitution, as for the geometric Brownian case, when the revenue functions are linear. Also, the presence of strategic interactions may push a firm with cost advantage to invest earlier, and the firm value as well as the optimal threshold for the investment decision increases as the market uncertainty increases.

Suggested Citation

  • Masaaki Kijima & Takashi Shibata, 2009. "Real Options in a Duopoly Market with General Volatility Structure," World Scientific Book Chapters, in: Masaaki Kijima & Masahiko Egami & Kei-ichi Tanaka & Yukio Muromachi (ed.), Recent Advances In Financial Engineering, chapter 4, pages 71-89, World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789814273473_0004
    as

    Download full text from publisher

    File URL: https://www.worldscientific.com/doi/pdf/10.1142/9789814273473_0004
    Download Restriction: Ebook Access is available upon purchase.

    File URL: https://www.worldscientific.com/doi/abs/10.1142/9789814273473_0004
    Download Restriction: Ebook Access is available upon purchase.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Takahiro Watanabe, 2012. "Real Options and Signaling in Strategic Investment Games," KIER Working Papers 809, Kyoto University, Institute of Economic Research.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:wschap:9789814273473_0004. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscientific.com/page/worldscibooks .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.