THE VALUE OF FIGHTING IRREVERSIBLE DEMISE BY SOFTENING THE IRREVERSIBLE COST

Paul Magis and Alessandro Sbuelz ()
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Paul Magis: Department of Econometrics, Tilburg University, P. O. Box 90153, 5000 LE, Tilburg, The Netherlands
Alessandro Sbuelz: Department of Economics, SAFE Center, University of Verona, Via Giardino Giusti 2, 37129, Verona, Italy

International Journal of Theoretical and Applied Finance (IJTAF), 2006, vol. 09, issue 04, 503-516

Abstract: We study a novel issue in the real-options-based technology innovation literature by means of double barrier contingent claims analysis. We show how much a firm with the monopoly over a project is willing to spend in investment technology innovation that softens the irreversible cost of accessing the project before its irreversible demise. The answer depends on the project's characteristics and on the effectiveness demanded from technology innovation.

Keywords: Double barrier options; cost irreversibility; demise irreversibility; technology innovation (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1142/S021902490600372X

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