Optimal timing of relocation
Purpose – This paper aims to focus on the problem of the optimal relocation policy for a firm that faces two types of uncertainty: one about the moments in which new (and more efficient) sites will become available; and the other regarding the degree of efficiency improvement inherent to each one of these new, yet to be known, potential location places. Design/methodology/approach – The paper considers the relocation issue as an optimal stopping decision problem. It uses Poisson jump processes to model the increase in the efficiency process, where these jumps occur according to a homogeneous Poisson process, but the magnitude of these jumps can have special distributions. In particular it assumes that the magnitudes can be gamma-distributed or truncated-exponential distributed. Findings – Particular characteristics concerning the expected optimal timing for relocation, the corresponding volatility and the value of the firm under the optimal relocation policy are derived. These results lead also to the conjecture that the optimal relocation policy is robust in terms of distributions of the degree of improvement of efficiency that are considered, as long as the expected values are the same. Originality/value – The paper provides an innovative approach to relocation problems, using stochastic tools. Moreover, the use of the truncated exponential and the gamma distribution functions to model the Poisson jumps is particularly suitable, given the situation under study. To the authors' knowledge, this is the first time that this type of setting is used to tackle a real options problem.
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): 6 (2010)
Issue (Month): 2 (April)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=ijmf Email:
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.:
- Huisman, K.J.M., 2000. "Technology investment : A game theoretic real options approach," Other publications TiSEM f35e7474-93d7-4140-8614-f, Tilburg University, School of Economics and Management.
- McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
- Collie, David R & Vandenbussche, Hylke, 2001.
"Trade, FDI and Unions,"
CEPR Discussion Papers
2772, C.E.P.R. Discussion Papers.
- de Meza, David & van der Ploeg, Frederick, 1987. "Production Flexibility as a Motive for Multinationality," Journal of Industrial Economics, Wiley Blackwell, vol. 35(3), pages 343-51, March.
- Peter Carr & Helyette Geman, 2002. "The Fine Structure of Asset Returns: An Empirical Investigation," The Journal of Business, University of Chicago Press, vol. 75(2), pages 305-332, April.
- Huisman, K.J.M. & Kort, P.M., 1998.
"Strategic Investment in Technological Innovations,"
1998-114, Tilburg University, Center for Economic Research.
- Cordella, Tito & Grilo, Isabel, 1998.
"'Globalization' and Relocation in a Vertically Differentiated Industry,"
CEPR Discussion Papers
1863, C.E.P.R. Discussion Papers.
- Isabel Grilo & Tito Cordella, 1998. "Globalization and Relocation in a Vertically Differentiated Industry," IMF Working Papers 98/48, International Monetary Fund.
- Farzin, Y.H. & Huisman, K.J.M. & Kort, P.M., 1996.
"Optimal Timing of Technology Adoption,"
1996-72, Tilburg University, Center for Economic Research.
- Merton, Robert C., 1976.
"Option pricing when underlying stock returns are discontinuous,"
Journal of Financial Economics,
Elsevier, vol. 3(1-2), pages 125-144.
- Merton, Robert C., 1975. "Option pricing when underlying stock returns are discontinuous," Working papers 787-75., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Capel, Jeannette, 1992. "How to service a foreign market under uncertainty: A real option approach," European Journal of Political Economy, Elsevier, vol. 8(3), pages 455-475, October.
- Ball, Clifford A. & Torous, Walter N., 1983. "A Simplified Jump Process for Common Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(01), pages 53-65, March.
- Kent D Miller & Jeffrey J Reuer, 1998. "Firm Strategy and Economic Exposure to Foreign Exchange Rate Movements," Journal of International Business Studies, Palgrave Macmillan, vol. 29(3), pages 493-513, September.
- Motta, Massimo & Thisse, Jacques-Francois, 1994. "Does environmental dumping lead to delocation?," European Economic Review, Elsevier, vol. 38(3-4), pages 563-576, April.
- Peter J Buckley & Mark C Casson, 1998. "Models of the Multinational Enterprise," Journal of International Business Studies, Palgrave Macmillan, vol. 29(1), pages 21-44, March.
- Beckers, Stan, 1981. "A Note on Estimating the Parameters of the Diffusion-Jump Model of Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(01), pages 127-140, March.
When requesting a correction, please mention this item's handle: RePEc:eme:ijmfpp:v:6:y:2010:i:2:p:143-163. 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: (Louise Lister)
If references are entirely missing, you can add them using this form.