Practical guide to real options in discrete time

Sergey Levendorskiy and Svetlana Boyarchenko ()

No 137, Computing in Economics and Finance 2004 from Society for Computational Economics

Abstract: Continuous time models in the theory of real options give explicit formulas for optimal exercise strategies when options are simple and the price of an underlying asset follows a geometric Brownian motion. This paper suggests a general, computationally simple approach to real options in discrete time. Explicit formulas are derived even for embedded options. Discrete time processes reflect the scarcity of observations in the data, and may account for fat tails and skewness of probability distributions of commodity prices. The method of the paper is based on the use of the expected present value operators.

Keywords: Real options; embedded options; expected present value operators (search for similar items in EconPapers)
JEL-codes: D81 C61 G31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp and nep-rmg
Date: 2004-08-11
View list of references View citations in EconPapers

Downloads: (external link)
http://www.eco.utexas.edu/~sboyarch/jet5.pdf main text (application/pdf)
http://repec.org/sce2004/up.7448.1077732919.pdf (application/pdf)

Related works:
Working Paper: Practical guide to real options in discrete time (2004)
Journal Article: PRACTICAL GUIDE TO REAL OPTIONS IN DISCRETE TIME (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:sce:scecf4:137

Access Statistics for this paper

More papers in Computing in Economics and Finance 2004 from Society for Computational Economics
Contact information at EDIRC.
Series data maintained by Christopher F. Baum ().