Optimal stopping made easy
This paper presents a simple discrete time model for valuing real options. A short proof of optimal exercise rules for the standard problems in the real options theory is given in the binomial and trinomial models, and more generally, when the underlying uncertainty is modelled as a random walk on a lattice. The method of the paper is based on the use of the expected present value operators. With straightforward modifications, the method works in discrete time--continuous space, continuous time--continuous space and continuous time--discrete space models.
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- Svetlana Boyarchenko & Sergei Levendorski&icaron;, 2007.
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"General option exercise rules, with applications to embedded options and monopolistic expansion,"
2006 Meeting Papers
312, Society for Economic Dynamics.
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- Svetlana Boyarchenko, 2004. "Irreversible Decisions and Record-Setting News Principles," American Economic Review, American Economic Association, vol. 94(3), pages 557-568, June.
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