Practical guide to real options in discrete time

Svetlana Boyarchenko and Sergei Levendorskii
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Sergei Levendorskii: The University of Texas at Austin

Finance from University Library of Munich, Germany

Abstract: Continuous time models in the theory of real options give explicit formulas for optimal exercise strategies when options are simple and the price of an underlying asset follows a geometric Brownian motion. This paper suggests a general, computationally simple approach to real options in discrete time. Explicit formulas are derived even for embedded options. Discrete time processes reflect the scarcity of observations in the data, and may account for fat tails and skewness of probability distributions of commodity prices. The method of the paper is based on the use of the expected present value operators.

Keywords: Real options; embedded options; expected present value operators (search for similar items in EconPapers)
JEL-codes: C61 D81 G31 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2004-05-11
New Economics Papers: this item is included in nep-fin
Note: Type of Document - pdf; pages: 28
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0405/0405016.pdf (application/pdf)

Related works:
Journal Article: PRACTICAL GUIDE TO REAL OPTIONS IN DISCRETE TIME (2007)
Working Paper: Practical guide to real options in discrete time II (2005)
Working Paper: Practical guide to real options in discrete time (2004)
Working Paper: Practical guide to real options in discrete time (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:0405016

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