A real option to divest with two correlated sources of ambiguity

Real options models have recently been expanded to account for ambiguity in various economic and financial settings, proving they are precious, flexible, and efficient decision-making tools. Yet, these real option models under ambiguity usually only account for the existence of a unique source of ambiguity, while more complex real-life situations require the modeling of multiple uncertain factors. We expand the theoretical work of Roubaud et al. (2017) by applying their framework of correlated Choquet-Brownian motions to the case of a real option to divest, with two correlated sources of ambiguity over its project value and exit value. This is the first application with multiple Choquet-Brownian ambiguity sources to an irreversible investment decision. Our findings illustrate the explanatory power of the model as well as some of its limitations. It also deepens the analysis of the effect of ambiguity on the value of options and on the timing of investors' decisions, hence expanding the real option irreversible investment theory.