Timing Decisions in a Multinational Context: Implementing the Amin/Bodurtha Framework

Manfred Fruhwirth (), Paul Schneider () and Markus S. Schwaiger
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Manfred Fruhwirth: Vienna University of Economics and Business Administration, Austria
Markus S. Schwaiger: Austrian Central Bank and Vienna University of Economics and Business Administration, Austria

Multinational Finance Journal, 2007, vol. 11, issue 3-4, 157-178

Abstract: The Amin/Bodurtha framework was developed for the valuation of American-style financial instruments driven by three sources of uncertainty— domestic interest rate risk, foreign interest rate risk and exchange rate risk. The model is not only appropriate for pricing a number of financial derivatives, but also, as we show, for valuing foreign investment projects in the presence of real options. In this paper we propose the most natural directly implementable specification within the Amin/Bodurtha framework that permits all combinations of up and down moves of these three risk factors without restricting volatility functions of the factors or correlations between them. By use of the depth-first algorithm, we can show that this specification is implementable at reasonable computation times

Keywords: American-style derivatives; multinational timing decisions; depth-first algorithm (search for similar items in EconPapers)
JEL-codes: F30 G13 G31 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:mfj:journl:v:11:y:2007:i:3-4:p:157-178

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