The Value of Fighting Irreversible Demise by Softening the Irreversible Cost

P. Magis, A. Sbuelz

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Abstract

We study a novel issue in the real-options-based technology innovation literature by means of double barrier contingent claims analysis.We show how much a ¯rm with the monopoly over a project is willing to spend in investment technology innovation that softens the irreversible cost of accessing the project before its irreversible demise.The answer depends on the project's characteristics and on the e®ectiveness demanded from technology innovation.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages21
Volume2005-26
Publication statusPublished - 2005

Publication series

NameCentER Discussion Paper
Volume2005-26

Keywords

  • Double barrier options
  • cost irreversibility
  • demise irreversibility
  • technology innovation

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    Magis, P., & Sbuelz, A. (2005). The Value of Fighting Irreversible Demise by Softening the Irreversible Cost. (CentER Discussion Paper; Vol. 2005-26). Finance.