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Long run value stabilization in a real options perspective


  • A. Mantovi



The present value of growth opportunities with stable long run value and decreasing investment cost is addressed in a real options perspective. The model is solved in terms of closed form solutions, and a duality between elementary real options of waiting to invest is conjectured to be a fundamental structure of a forthcoming theory of real options. A pure capital budgeting perspective is pursued. Natural lines for future research are accounted for.

Suggested Citation

  • A. Mantovi, 2009. "Long run value stabilization in a real options perspective," Economics Department Working Papers 2009-EP01, Department of Economics, Parma University (Italy).
  • Handle: RePEc:par:dipeco:2009-ep01

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    References listed on IDEAS

    1. Chang,Fwu-Ranq, 2009. "Stochastic Optimization in Continuous Time," Cambridge Books, Cambridge University Press, number 9780521541947, March.
    2. Grenadier, Steven R. & Wang, Neng, 2005. "Investment timing, agency, and information," Journal of Financial Economics, Elsevier, vol. 75(3), pages 493-533, March.
    3. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters,in: Theory Of Valuation, chapter 8, pages 229-288 World Scientific Publishing Co. Pte. Ltd..
    4. Steven R. Grenadier, 2002. "Option Exercise Games: An Application to the Equilibrium Investment Strategies of Firms," Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 691-721.
    5. Bulan, Laarni T., 2005. "Real options, irreversible investment and firm uncertainty: New evidence from U.S. firms," Review of Financial Economics, Elsevier, vol. 14(3-4), pages 255-279.
    6. Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 707-727.
    7. Thijssen, Jacco J.J., 2008. "Optimal and strategic timing of mergers and acquisitions motivated by synergies and risk diversification," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1701-1720, May.
    8. Roques, Fabien A. & Savva, Nicos, 2009. "Investment under uncertainty with price ceilings in oligopolies," Journal of Economic Dynamics and Control, Elsevier, vol. 33(2), pages 507-524, February.
    9. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    10. Bart M. Lambrecht & Stewart C. Myers, 2007. "A Theory of Takeovers and Disinvestment," Journal of Finance, American Finance Association, vol. 62(2), pages 809-845, April.
    11. Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-157, April.
    12. Thomas Arnold & Richard L. Shockley, 2002. "Real Options, Corporate Finance, And The Foundations Of Value Maximization," Journal of Applied Corporate Finance, Morgan Stanley, vol. 15(2), pages 82-88.
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    More about this item


    PVGO; real options; strategic investment; learning;

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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