Optimal Risk Adoption: A Real Options Approach


Autoria(s): Alvarez, Luis H. R.; Stenbacka, Rune
Contribuinte(s)

Svenska handelshögskolan, Institutionen för nationalekonomi, nationalekonomi

Swedish School of Economics and Business Administration, Department of Economics, Economics

Data(s)

2001

Resumo

This study develops a real options approach for analyzing the optimal risk adoption policy in an environment where the adoption means a switch from one stochastic flow representation into another. We establish that increased volatility needs not decelerate investment, as predicted by the standard literature on real options, once the underlying volatility of the state is made endogenous. We prove that for a decision maker with a convex (concave) objective function, increased post-adoption volatility increases (decreases) the expected cumulative present value of the post-adoption profit flow, which consequently decreases (increases) the option value of waiting and, therefore, accelerates (decelerates) current investment.

Formato

1837 bytes

197921 bytes

application/pdf

text/plain

Identificador

http://hdl.handle.net/10227/157

URN:ISBN:951-555-697-X

951-555-697-X

0357-4598

Idioma(s)

en

Publicador

Svenska handelshögskolan

Swedish School of Economics and Business Administration

Relação

Working Papers

460

Direitos

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Palavras-Chave #risk adoption #investment #real option #Economics
Tipo

Text