Multi-assets real options
AbstractReal options present a wide topic in investment litterature nowadays. However, despite big advances in the single asset investment pricing, the theory is miser of informations about problems involving more than one asset. We show in this paper that using dynamic programming, one can find an analytic trigger for a three assets simple exchange problem. Although we get a forward investment rule, one can not find the precise option value ex ante but only an average value. The precise option value depends on the first exit time from the continuation region which is stochastic. This is a quite intuitive effect of the course of dimensionality of the problem. Valuating a single asset project gives a single condition for the optimal decision rule. The same holds for the simple exchange problem with two assets since the value of the project just depends on the price over cost ratio. In a three assets problem, as the project don't depend anymore of a single state variable, one can't region.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2009051.
Date of creation: 01 Sep 2009
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real options; dynamic programming; price and cost uncertainty;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-28 (All new papers)
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- Rohlfs, Wilko & Madlener, Reinhard, 2010. "Valuation of CCS-Ready Coal-Fired Power Plants: A Multi-Dimensional Real Options Approach," FCN Working Papers 7/2010, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
- Rohlfs, Wilko & Madlener, Reinhard, 2011. "Multi-Commodity Real Options Analysis of Power Plant Investments: Discounting Endogenous Risk Structures," FCN Working Papers 22/2011, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
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