Real Options under Choquet-Brownian Ambiguity
Real options models characterized by the presence of ambiguity have been recently proposed. But based on recursive multiple-priors approaches to solve ambiguity, these seminal models reduce individual preferences to extreme pessimism by considering only the worst case scenario. In contrast, by relying on dynamically consistent Choquet-Brownian motions to model the dynamics of ambiguous expected cash flows, we show that a much broader spectrum of attitudes towards ambiguity may be accounted for. In the case of a perpetual real option to invest, ambiguity aversion delays the moment of exercise of the option, while the opposite holds true for an ambiguity lover.
|Date of creation:||08 Nov 2010|
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|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00534027|
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