Valuing Finite-Maturity Investment-Timing Options

Moon Hoe Lee

Financial Management, 1997, vol. 26, issue 2

Abstract: The investment-timing option (ITO) provides the ability to postpone rather than immediately implement or reject a capital budgeting process. It can significantly increase a project's value. A method for computing the value of an ITO for a postponable project with a finite maturing is presented. The effect of time until expiration on hurdle rates and the option to defer or reject the investment are also investigated.

Date: 1997
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