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Long run value stabilization in a real options perspective

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  • A. Mantovi

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Abstract

The present value of growth opportunities with stable long run value and decreasing investment cost is addressed in a real options perspective. The model is solved in terms of closed form solutions, and a duality between elementary real options of waiting to invest is conjectured to be a fundamental structure of a forthcoming theory of real options. A pure capital budgeting perspective is pursued. Natural lines for future research are accounted for.

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File URL: http://swrwebeco.econ.unipr.it/RePEc/pdf/I_2009-01.pdf
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Bibliographic Info

Paper provided by Department of Economics, Parma University (Italy) in its series Economics Department Working Papers with number 2009-EP01.

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Length: 15
Date of creation: 2009
Date of revision:
Handle: RePEc:par:dipeco:2009-ep01

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Keywords: PVGO; real options; strategic investment; learning;

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  1. Steven R. Grenadier & Neng Wang, 2005. "Investment Timing, Agency, and Information," NBER Working Papers 11148, National Bureau of Economic Research, Inc.
  2. Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 58(2), pages 135-57, April.
  3. Thomas Arnold & Richard L. Shockley, 2002. "Real Options, Corporate Finance, And The Foundations Of Value Maximization," Journal of Applied Corporate Finance, Morgan Stanley, Morgan Stanley, vol. 15(2), pages 82-88.
  4. Steven R. Grenadier, 2002. "Option Exercise Games: An Application to the Equilibrium Investment Strategies of Firms," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 15(3), pages 691-721.
  5. Bulan, Laarni T., 2005. "Real options, irreversible investment and firm uncertainty: New evidence from U.S. firms," Review of Financial Economics, Elsevier, Elsevier, vol. 14(3-4), pages 255-279.
  6. Thijssen, Jacco J.J., 2008. "Optimal and strategic timing of mergers and acquisitions motivated by synergies and risk diversification," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 32(5), pages 1701-1720, May.
  7. McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 101(4), pages 707-27, November.
  8. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
  9. Roques, Fabien A. & Savva, Nicos, 2009. "Investment under uncertainty with price ceilings in oligopolies," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 33(2), pages 507-524, February.
  10. Bart M. Lambrecht & Stewart C. Myers, 2007. "A Theory of Takeovers and Disinvestment," Journal of Finance, American Finance Association, American Finance Association, vol. 62(2), pages 809-845, 04.
  11. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, Elsevier, vol. 5(2), pages 147-175, November.
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