Risk-hedging using options for an upgrading investment in a data network
In this paper, we illustrate how a mobile data network operator can plan an upgrading investment to anticipate explosions of the demand, taking into account the expected generated profit and the customers satisfaction. The former parameter grows with the demand, whereas the latter sinks if the demand is too high as throughput may collapse. As the equipment price decreases with time, it may be interesting to wait rather than to invest at once. We then propose a real option strategy to hedge against the risk that the investment has to take place earlier than expected. At last, we price this option with a backward dynamic programming approach, using recent improvements based on least-squares estimations.
|Date of creation:||27 Sep 2011|
|Note:||View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00627092|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-00627092. 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.