On the use of implied yields in real option modelling
(English)Manuscript (preprint) (Other academic)
In many applications of real options there is an assumption of complete capital markets. For the perpetual optimal timing option this means that if the underlying asset (e.g. a developed project) does not pay out any cash ﬂows, then there is no ﬁnite optimal time at which the investment should be undertaken. In contrast, when the markets are incomplete, there could be a possibility of a ﬁnite optimal stopping time. We discuss the incomplete case in detail, connect it with yields and “implied yields” and give several examples of incomplete market models where could be a ﬁnite optimal time to invest.
Real options, Incomplete markets, Irreversible investments
Economics and Business
IdentifiersURN: urn:nbn:se:kth:diva-188140OAI: oai:DiVA.org:kth-188140DiVA: diva2:933611
QC 201606072016-06-072016-06-072016-09-02Bibliographically approved