Irreversible Decisions and Record-Setting News Principles
In the now-classical real options theory, the price of an underlying asset is modeled as a geometric Brownian motion, and optimal exercise strategies are described by simple explicit formulas. This paper extends the classical theory to allow any geometric Le´vy process to model prices. Such processes may account for fat tails and skewness of probability distributions of commodity prices. The optimal exercise strategies are specified in the paper in terms of statistics of record-setting low or high prices. The formulas derived extend those observed in the Gaussian case, but the form of the result is novel even for that case.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 94 (2004)
Issue (Month): 3 (June)
|Contact details of provider:|| Web page: https://www.aeaweb.org/aer/|
More information through EDIRC
|Order Information:||Web: https://www.aeaweb.org/subscribe.html|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andrew B. Abel & Avinash K. Dixit & Janice C. Eberly & Robert S. Pindyck, 1995.
"Options, the Value of Capital, and Investment,"
NBER Working Papers
5227, National Bureau of Economic Research, Inc.
- Abel, Andrew B., 1952-, 1995. "Options, the value of capital, and investment," Working papers 3843-95., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Andrew B. Abel & Avinash K. Dixit & Janice B. Eberly & Robert S. Pindyck, . "Options, the Value of Capital, and Investment," Rodney L. White Center for Financial Research Working Papers 15-95, Wharton School Rodney L. White Center for Financial Research.
- Deaton, A. & Laroque, G., 1989.
"On The Behavior Of Commodity Prices,"
145, Princeton, Woodrow Wilson School - Public and International Affairs.
- Ben S. Bernanke, 1980.
"Irreversibility, Uncertainty, and Cyclical Investment,"
NBER Working Papers
0502, National Bureau of Economic Research, Inc.
- Bernanke, Ben S, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, MIT Press, vol. 98(1), pages 85-106, February.
- Boyarchenko Svetlana & Levendorsky Sergey, 1998. "Models of Investment under Uncertainty when Shocks are Non-Gaussian. On the Impact of the Policy Uncertainty on Investment," EERC Working Paper Series 98-02e, EERC Research Network, Russia and CIS.
- Andrew B. Abel & Janice B. Eberly, .
"The Effects of Irreversibility and Uncertainty on Capital Accumulation,"
Rodney L. White Center for Financial Research Working Papers
21-95, Wharton School Rodney L. White Center for Financial Research.
- Abel, Andrew B. & Eberly, Janice C., 1999. "The effects of irreversibility and uncertainty on capital accumulation," Journal of Monetary Economics, Elsevier, vol. 44(3), pages 339-377, December.
- Andrew B. Abel & Janice C. Eberly, 1995. "The Effects of Irreversibility and Uncertainty on Capital Accumulation," NBER Working Papers 5363, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:94:y:2004:i:3:p:557-568. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros)or (Michael P. Albert)
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.