Irreversibility, endogenous mean reversion, and the investment decision of a foreign firm

Christian Pierdzioch

No 847, Kiel Working Papers from Kiel Institute for the World Economy

Abstract: The paper derives a valuation formula for the real option of a firm to undertake an irreversible investment in a foreign economy based on the endogenous dynamics of a stochastic macroeconomic framework with sluggish price adjustment. The option valuation formula is implemented to analyze the impact of macroeconomic dynamics on the attraction of an economy for foreign investors.

JEL-codes: F21 F41 (search for similar items in EconPapers)
Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:847

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