Information acquisition as an American option

Babak Jafarizadeh

Energy Economics, 2012, vol. 34, issue 3, 807-816

Abstract: Many information acquisition activities can be postponed within a predefined time-frame. In uncertain situations, the option to postpone the information acquisition to a later, more favorable time may create value. We discuss the value that comes from holding an option to acquire information in a time period and suggest a simulation-based numerical approach to calculate the associated value. We discuss that the value of information in a time period may be very different from the value of information in a single point in time. This value is closely linked to the uncertainty of the decision outcomes over the time period.

Keywords: Real options; Value of information; Least squares Monte Carlo; Real options valuation (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:34:y:2012:i:3:p:807-816

DOI: 10.1016/j.eneco.2011.04.002

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