The real option with an absorbing barrier
This paper analyzes the theoretical problem of the real option with barrier. It models an investment decision with a double irreversibility concern: investing is irreversible, but waiting runs the risk of loosing the opportunity to invest. The optimal strategy leads to earlier investment when the barrier increases, or when uncertainty decreases. Uncertainty has ambiguous effects on the expected decision time and on the investment probability after N years. Analytical and numerical results also apply to the perpetual American call with a down-and-out barrier on a dividend paying asset.
|Date of creation:||May 2003|
|Publication status:||Published in 2003|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00003976|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
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.:
- Ha-Duong, Minh, 1998.
"Quasi-option value and climate policy choices,"
Elsevier, vol. 20(5-6), pages 599-620, December.
- Minh Ha-Duong, 1998. "Quasi-option value and climate policy choices," Post-Print halshs-00002457, HAL.
- Gao, Bin & Huang, Jing-zhi & Subrahmanyam, Marti, 2000. "The valuation of American barrier options using the decomposition technique," Journal of Economic Dynamics and Control, Elsevier, vol. 24(11-12), pages 1783-1827, October.
- Marti G. Subrahmanyam & Bin Gao & Jing-zhi Huang, 1998. "The Valuation of American Barrier Options Using the Decomposition Technique," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-067, New York University, Leonard N. Stern School of Business-.
- Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474, 09-2014. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:hal:journl:halshs-00003976. 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: (CCSD)
If references are entirely missing, you can add them using this form.