Risk-hedging using options for an upgrading investment in a data network

Frédéric Morlot (), Thomas Redon and Salah Eddine Elayoubi ()
Additional contact information
Frédéric Morlot: Orange Labs [Issy les Moulineaux] - France Télécom
Thomas Redon: Orange Labs [Issy les Moulineaux] - France Télécom
Salah Eddine Elayoubi: Orange Labs [Issy les Moulineaux] - France Télécom

Working Papers from HAL

Abstract: In this paper, we illustrate how a mobile data network operator can plan an upgrading investment to anticipate explosions of the demand, taking into account the expected generated profit and the customers satisfaction. The former parameter grows with the demand, whereas the latter sinks if the demand is too high as throughput may collapse. As the equipment price decreases with time, it may be interesting to wait rather than to invest at once. We then propose a real option strategy to hedge against the risk that the investment has to take place earlier than expected. At last, we price this option with a backward dynamic programming approach, using recent improvements based on least-squares estimations.

Date: 2011-09-27
Note: View the original document on HAL open archive server: https://hal.science/hal-00627092
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://hal.science/hal-00627092/document (application/pdf)

Related works:
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: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-00627092

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().