REAL OPTIONS: BATCH PROCESS AND MARKET ENTRY/EXIT DECISIONS UNDER UNCERTAINTY

Chin-Tsai Lin and Cheng-Ru Wu
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Chin-Tsai Lin: Ming Chuan University, Graduate School of Management, Chung Shan North Road, Section 5, Taipei, Taiwan, R.O.C.
Cheng-Ru Wu: Ming Chuan University, Graduate School of Management, Chung Shan North Road, Section 5, Taipei, Taiwan, R.O.C.

Asia-Pacific Journal of Operational Research (APJOR), 2004, vol. 21, issue 01, 35-52

Abstract: Under uncertainty of exchange rate, we extend the batch process production model of Linet al. (2002) by considering an export-oriented manufacturer making decisions to switch freely between domestic and foreign locations. The export-oriented manufacturer is risk neutral and has rational expectations. We use dynamic programming and Lagrange multiplies for a stochastic optimization control problem to get the productive value of exporter produces in domestic and foreign locations. Next, the export-oriented manufacturer can make decision regarding the optimal entry (exit) trigger for transferable locations wherever the product locations are. It provides the supplier with another way to make decisions.

Keywords: International business; batch process; entry and exit; exchange rate uncertainty; real options (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0217595904000023

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