Optimal Investment under Cost Uncertainty
AbstractThis paper studies the valuation of real options when the cost of investment jumps at a random time. Three valuation formulas are derived. The first expresses the value of the project in terms of a collection of knockout barrier claims. The second identifies the premium relative to a project with delayed investment right and prices its components. The last one identifies the premium/discount relative to a project with constant cost equal to the post-jump cost and prices its components. All formulas are in closed form. The behavior of optimal investment boundaries and valuation components are examined. View Full-Text
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Detemple, J.; Kitapbayev, Y. Optimal Investment under Cost Uncertainty. Risks 2018, 6, 5.
Detemple J, Kitapbayev Y. Optimal Investment under Cost Uncertainty. Risks. 2018; 6(1):5.Chicago/Turabian Style
Detemple, Jerome; Kitapbayev, Yerkin. 2018. "Optimal Investment under Cost Uncertainty." Risks 6, no. 1: 5.