A jump-diffusion real option approach for hotel investment under uncertain lodging demand

Kybernetes ◽  
2016 ◽  
Vol 45 (10) ◽  
pp. 1604-1616 ◽  
Author(s):  
Rufei Ma ◽  
Pengxiang Zhai
Keyword(s):  
Real Option ◽  
Economic Recession ◽  
Optimal Investment ◽  
Jump Diffusion ◽  
Discounted Cash Flow ◽  
Content Type ◽  
Investment Timing ◽  
Real Option Approach ◽  
Hotel Investment ◽  
The Impact

Purpose One of the important characteristics of the hotel business is uncertainty of lodging demand, which can jeopardize hotel operation and ultimately even threaten a hotel’s survival during an economic recession. The purpose of this paper is to propose an approach to determine optimal hotel investment issues under uncertain lodging demand. Design/methodology/approach Uncertainty of lodging demand is classified into two types: the impact of unexpected economic recession and the temporary imbalance between supply of hotel rooms and lodging demand. A jump-diffusion real option approach is proposed to analyze how these two types affect optimal investment timing and the potential value of new hotel projects. The case of hotel investment in Macao is used to illustrate the jump-diffusion real option approach. Findings The results of numerical analysis show that the uncertainty induced by temporary imbalance between supply of hotel rooms and lodging demand increases the threshold of investment and hotel value, while the uncertainty induced by unexpected economic recession has ambiguous effects on the value and optimal investment timing of new hotel projects. Practical implications The jump-diffusion real option approach increases managerial flexibility for managers when making investment decisions on new hotel projects, allowing greater value to be generated than is possible with the conventional discounted cash flow method. Originality/value The approach separates the impact of unexpected economic recession on lodging demand from that of “normal” fluctuations in lodging demand, and it considers the impact of both types of uncertainty on hotel investment.

scholarly journals Optimal Investment Timing and Scale Choice of Overseas Oil Projects: A Real Option Approach

Energies ◽  
2018 ◽  
Vol 11 (11) ◽  
pp. 2954 ◽  
Author(s):  
Jia-Yue Huang ◽  
Yun-Fei Cao ◽  
Hui-Ling Zhou ◽  
Hong Cao ◽  
Bao-Jun Tang ◽  
...  
Keyword(s):  
Real Option ◽  
Oil Prices ◽  
Optimal Investment ◽  
Oil Price ◽  
Uncertain Environments ◽  
Investment Timing ◽  
Oil Companies ◽  
Geological Conditions ◽  
Real Option Approach ◽  
The Impact

This article presents a real option model for helping investors to determine the optimal investment timing and scale of overseas oil projects. The model is suitable for the highly uncertain environments in which many oil companies operate, where they have to suspend upstream investment, stop new oilfield construction, and wait for proper oil prices in order to avoid losses. Considering the uncertainty of oil prices and exchange rates, the results of analytical solutions presented in this paper show the critical oil price that can be seen as the investment threshold for triggering oilfield development as well as the optimal recoverable factor for every oil price level to indicate the optimal investment scale. Results of the case project show the critical oil price, which is 82.32 US dollar per barrel, and the selection of optimal investment scale. The article also demonstrates the impact of investment scale on investment timing in overseas oil projects. The policy implication from the case project is that investment decisions are finitely impacted by geological conditions. Besides, the existence of tax holiday directly contributes to a lower investment threshold. In addition, reducing unit operation cost can obviously enlarge optimal investment scale and initiate oil projects in a relatively low level of investment threshold.

scholarly journals Missed Opportunities: Optimal Investment Timing When Information is Costly

2007 ◽  
Vol 42 (2) ◽  
pp. 467-488 ◽  
Author(s):  
Graeme Guthrie
Keyword(s):  
Real World ◽  
Real Option ◽  
Optimal Investment ◽  
Investment Opportunity ◽  
Missed Opportunities ◽  
Investment Timing ◽  
Real Option Analysis ◽  
Amount Of Information ◽  
Optimal Delay

AbstractReal option analysis typically assumes that projects are continuously evaluated and launched at precisely the time determined to be optimal, but real world projects cannot be managed in this way because of the costs of formally evaluating an investment opportunity. This paper shows that immediate investment is more attractive if evaluation costs are high or the amount of information to be revealed by an evaluation is large. The optimal delay until a reevaluation is long if evaluation costs are high or the amount of information to be revealed by an evaluation is small. The reduction in the value of project rights is especially severe when the value of the completed project is strongly mean reverting because then precision in investment timing is particularly important.

Conclusion

2014 ◽  
Vol 6 (5) ◽  
pp. 485-490 ◽  
Author(s):  
Jorge Costa ◽  
João Gomes ◽  
Mónica Montenegro
Keyword(s):  
Economic Recession ◽  
Tourism Industry ◽  
Theme Issue ◽  
Content Type ◽  
Tourist Destinations ◽  
Industry Performance ◽  
Key Points ◽  
Negative Impacts ◽  
The Impact ◽  
Creativity And Innovation

Purpose – This paper aims to critically review the contributions made by the authors of the articles selected for this theme issue and to present the main lessons learnt, recommendations and key points for action by tourist destinations. Design/methodology/approach – Content analysis of the papers presented in this theme issue was performed so as to review the most relevant contributions made by authors. Findings – From the analysis of the different articles and proposals by their authors, it becomes clear that Portugal has managed to face the context of financial crisis in a positive manner, thus avoiding negative impacts on the image of Portugal as a tourist destination. By stimulating creativity and innovation among industry operators, new products and services have been developed and offered to the market. This outcome contrasts with the situation at the start of the economic recession when it was not possible to attract new tourists, improve the rate of repeaters or achieve strong industry performance. Originality/value – A summary of the key ideas in the articles comprising this theme issue is presented, allowing for the identification of good practices and lessons to be learned from a very tough economic and social context. Despite the unpopular measures taken by political decision-makers, the impact in the tourism industry, was positive, resulting in improved results in the main tourism indicators.

scholarly journals Least Squares Monte Carlo Simulation-Based Decision-Making Method for Photovoltaic Investment in Korea

2021 ◽  
Vol 13 (19) ◽  
pp. 10613
Author(s):  
Jungmin An ◽  
Dong-Kwan Kim ◽  
Jinyeong Lee ◽  
Sung-Kwan Joo
Keyword(s):  
Decision Making ◽  
Monte Carlo ◽  
Renewable Energy ◽  
Least Squares ◽  
Sustainable Energy ◽  
Clean Energy ◽  
Optimal Investment ◽  
Investment Timing ◽  
Least Squares Monte Carlo ◽  
The Impact

Solar power for clean energy is an important asset that will drive the future of sustainable energy generation. As interest in sustainable energy increases with Korea’s renewable energy expansion plan, a strategy for photovoltaic investment (PV) is important from an investor’s point of view. Previous research primarily focused on assessing and analyzing the impact of the volatility but paid little attention to the modeling decision-making project to obtain the optimal investment timing. This paper utilizes a Least Squares Monte Carlo-based method for determining the timing of PV plant investment. The proposed PV decision-making method is designed to simulate the total PV generation revenue period with all uncertain PV price factors handled before determining the optimal investment time. The numerical studies with nine different scenarios considering system marginal price (SMP) and renewable energy certificate (REC) spot market price in Korea demonstrated how to determine the optimal investment time for different PV capacities. Therefore, the proposed method can be used as a decision-making tool to provide PV investors with information on the best time to invest in the renewable energy market.

Valuation of a Troubled Firm: A Case Study on Jet Airways

2014 ◽  
Vol 1 (2) ◽  
Author(s):  
Anjala Kalsie
Keyword(s):  
Real Option ◽  
Market Price ◽  
Discounted Cash Flow ◽  
Book Value ◽  
The Real ◽  
Real Option Approach ◽  
Indian Firm ◽  
Real Option Method ◽  
Discounted Cash Flow Method

The objective in the paper is to value a firm in distress which is struggling to survive and continue its operations, unable to meet its debt obligations, and making losses so that it has a negative book value. The paper has taken a listed Indian firm which is in operation since a decade called Jet Airways. The paper looks at different methods to value this company, the most prominent being the real option approach to valuation. Finally, a comparison of different valuation methods was done with the real company price. The Discounted Cash Flow method tends to overvalue the price of a distressed firm. Real option method gives us a much smaller intrinsic price which is even close to the market price of the share.

Determinants of bilateral trade between China and Africa: a gravity model approach

2020 ◽  
Vol 47 (5) ◽  
pp. 1015-1038
Author(s):  
Zhijie Guan ◽  
Jim Kwee Fat Ip Ping Sheong
Keyword(s):  
Gravity Model ◽  
Bilateral Trade ◽  
Economic Recession ◽  
Trade Agreement ◽  
Trade Agreements ◽  
Negative Effects ◽  
Content Type ◽  
Factors Affecting ◽  
The Impact ◽  
Model Approach

PurposeThe main purpose of this paper is to analyse the different factors affecting Sino-African trade based on the gravity model, and propose some solutions to improve the problems.Design/methodology/approachThe paper is based on an extended gravity model, including trade agreement and recession as explanatory variables. The impacts of trade agreement and economic recession on Sino-African imports and exports are examined.FindingsThe results show that the product of GDP affects African exports to China significantly and negatively, and affects African imports from China positively. Real exchange rate affects African exports to China positively, and affects African imports from China negatively. Population affect African exports to China significantly and positively, and affect African imports from China positively. Recession have negative effects on both African imports from China and exports to China but is only significant for imports. Agreement affects African imports from China and exports to China positively. Our findings confirm the impact of economic recession, and imply that the structure of African product exported to China should be improved, and trade agreements should be reinforced.Originality/valueThis paper contributes and extends the literature on Sino-African trade by improving the traditional gravity model to include the impact of all trade agreements, and their aggregating effects on trade. The paper also seeks to assess the trade impact of economic recession through a dynamic gravity model approach for which there has been no research done to our knowledge. In this regard, it provides new understanding of the trade pattern between China and Africa, and ways in improving the Sino-African bilateral trade.

The impact of the Greek economic recession on workplace learning

2019 ◽  
Vol 31 (5) ◽  
pp. 345-358
Author(s):  
Stavros Papakonstantinidis
Keyword(s):  
Competitive Advantage ◽  
Informal Learning ◽  
Learning Strategies ◽  
Workplace Learning ◽  
Economic Recession ◽  
Economic Recovery ◽  
Business Success ◽  
Structured Interviews ◽  
Content Type ◽  
The Impact

Purpose The paper aims to examine the impact of the Greek economic recession on workplace learning. Specifically, it surveys the views of Greek business professionals regarding whether workplace learning could be used as a competitive advantage in achieving business success. Design/methodology/approach The paper follows a qualitative research method and discusses the findings of semi-structured interviews with professionals in various industries in Greece. Findings This study provides evidence of an overall reluctance to adopt formal learning strategies. Although hiring and retaining the best talent at work is seen as a competitive advantage, Greek professionals do not attribute success to formal workplace learning. Instead, digitalization of informal learning becomes essential for acquiring new knowledge. Social implications In the first few years of Greece’s economic recovery, companies aim to keep their budgets low in anything that seems luxurious and ultimately unnecessary. The paper discusses some implications of the implementation of digitalized informal learning in business. Originality/value This study is the first to explore how Greek professionals from various business sectors and managerial levels view workplace learning during the initial years of the country’s economic recovery.

Entrepreneurial intention in the time of crisis: a field study

2016 ◽  
Vol 22 (6) ◽  
pp. 835-859 ◽  
Author(s):  
Alessandro Arrighetti ◽  
Luca Caricati ◽  
Fabio Landini ◽  
Nadia Monacelli
Keyword(s):  
University Students ◽  
Economic Recession ◽  
Entrepreneurial Intention ◽  
Entrepreneurial Intentions ◽  
Cross Sectional ◽  
Content Type ◽  
Entrepreneurial Intent ◽  
New Business ◽  
Severe Recession ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of a prolonged economic recession on the entrepreneurial intentions of young people (university students) distinguishing between propensity to start a new business (i.e. degree of interest in entrepreneurship) and perceived likelihood of becoming an entrepreneur (i.e. probability to start a business in the future). Furthermore this study verifies if the recession strengthens the orientation to exploit new market opportunities, or simply supports self-employment objectives. Design/methodology/approach Entrepreneurial intention was measured in terms of propensity to start a new business and perceived likelihood of becoming an entrepreneur. Psychosocial and economic variables were measured as well. Information was gathered through questionnaires distributed in both electronic and paper-and-pencil form to a sample of 3,684 Italian University students enrolled in 12 different faculties. Findings First, this study found that while the perception of the economic crisis as an obstacle to new business creation does not impact on the propensity toward entrepreneurship, it has a negative and highly significant impact on the likelihood to start a business. Second, when a distinction is made between opportunity- and necessity-based types, results show that while for the latter the crisis impacts only on the perceived likelihood to become an entrepreneur, for the former it affects both dimensions of entrepreneurship, i.e., both propensity and perceived likelihood. Moreover, neither family support nor economic institutions are perceived as relevant in sustaining entrepreneurial intentions. On the contrary, the university is considered as a key support entity. Research limitations/implications Reliance on cross-sectional questionnaires instead of an experimental design imposes caution about the causal relationships between predictors and entrepreneurial intent. Originality/value The present paper is one of the few studies concerning the influence of rapid worsening of external economic context (severe recession) on the entrepreneurial intent.

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