Real options for an entrepreneur with preferences for liquidity

Pengfei Luo, Ting Lu and DanDan Song

Economics Letters, 2021, vol. 204, issue C

Abstract: This paper extends the classical real options model by taking into consideration the preferences for liquidity under incomplete market, and aims to examine the implications of liquidity preferences on the optimal investment timing and option value. The results show that preferences for liquidity have two opposite effects on optimal investment strategies, and significantly erode the option value.

Keywords: Real options; Preferences for liquidity; Incomplete market (search for similar items in EconPapers)
JEL-codes: G11 G32 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:204:y:2021:i:c:s016517652100166x

DOI: 10.1016/j.econlet.2021.109889

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