The worst case for real options

P.M. Kort, M. Trojanowska

Research output: Contribution to journalArticleScientificpeer-review

Abstract

The problem of the timing of an investment decision under partial information is analyzed in a framework where the firm is ambiguity averse. The analysis yields the description of a robust decision rule for an investment in a finite life project in presence of a stochastic instantaneous return. It is demonstrated that ambiguity aversion may accelerate investment in the short run. Ex post validation of the determined investment policy treats the impact of ambiguity aversion on the proper way of discounting of the profit flow resulting from the project and the fair price of risk associated with ambiguity aversion.
Original languageEnglish
Pages (from-to)709-734
JournalJournal of Optimization Theory and Applications
Volume146
Issue number3
Publication statusPublished - 2010

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Real Options
Discounting
Partial Information
Decision Rules
Accelerate
Instantaneous
Profit
Timing
Profitability
Ambiguity
Real options
Ambiguity aversion

Cite this

Kort, P.M. ; Trojanowska, M. / The worst case for real options. In: Journal of Optimization Theory and Applications. 2010 ; Vol. 146, No. 3. pp. 709-734.
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Kort, PM & Trojanowska, M 2010, 'The worst case for real options', Journal of Optimization Theory and Applications, vol. 146, no. 3, pp. 709-734.

The worst case for real options. / Kort, P.M.; Trojanowska, M.

In: Journal of Optimization Theory and Applications, Vol. 146, No. 3, 2010, p. 709-734.

Research output: Contribution to journalArticleScientificpeer-review

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