Real Options under Choquet-Brownian Ambiguity
AbstractReal options models characterized by the presence of ambiguity have been recently proposed. But based on recursive multiple-priors approaches to solve ambiguity, these seminal models reduce individual preferences to extreme pessimism by considering only the worst case scenario. In contrast, by relying on dynamically consistent Choquet-Brownian motions to model the dynamics of ambiguous expected cash flows, we show that a much broader spectrum of attitudes towards ambiguity may be accounted for. In the case of a perpetual real option to invest, ambiguity aversion delays the moment of exercise of the option, while the opposite holds true for an ambiguity lover.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by HAL in its series Working Papers with number halshs-00534027.
Date of creation: 08 Nov 2010
Date of revision:
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00534027/en/
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/
Real Options; Ambiguity; Irreversible investment; Optimal stopping; Knightian uncertainty; Choquet-Brownian motions;
Other versions of this item:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- So, Leh-chyan, 2013. "Are Real Options “Real”? Isolating Uncertainty from Risk in Real Options Analysis," MPRA Paper 52493, University Library of Munich, Germany.
- Kast, Robert & Lapied, André & Roubaud, David, 2014. "Modelling under ambiguity with dynamically consistent Choquet random walks and Choquet–Brownian motions," Economic Modelling, Elsevier, Elsevier, vol. 38(C), pages 495-503.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).
If references are entirely missing, you can add them using this form.