Optimal timing of investments modeled as perpetual american options in a lévy market

International Journal of Financial Engineering ◽

10.1142/s2424786321500250 ◽

2021 ◽

pp. 2150025

Author(s):

Ini Adinya ◽

G. O. S. Ekhaguere

Keyword(s):

Infinitesimal Generator ◽

Real Option ◽

Real Life ◽

Jump Diffusion ◽

Poisson Processes ◽

Optimal Time ◽

Optimal Timing ◽

Call Option ◽

Maturity Date ◽

Real Option Approach

Using a real option approach, this paper models an arbitrary real life investment, which typically has a long maturity date, as a perpetual American call option in a Levy market. Expressions for the moments, characteristic function and infinitesimal generator of the associated jump-diffusion Levy process, defined by two independent compound Poisson processes and two correlated standard Brownian motions, are derived and these fundamental results are employed to determine the optimal time for investment. An application of the results to a Build Operate and Transfer investment is furnished.

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A REAL OPTION APPROACH TO DETERMINE OPTIMAL INTERVENTION WINDOWS FOR MULTI-NATIONAL RAIL CORRIDORS

Journal of Civil Engineering and Management ◽

10.3846/13923730.2014.994030 ◽

2015 ◽

Vol 22 (1) ◽

pp. 38-46 ◽

Cited By ~ 4

Author(s):

Nam LETHANH ◽

Bryan T. ADEY

Keyword(s):

Differential Equation ◽

Financial Engineering ◽

Real Option ◽

Equation Model ◽

Optimal Time ◽

Differential Equation Model ◽

Call Options ◽

Optimal Intervention ◽

Rail Infrastructure ◽

Real Option Approach

In this paper, a real option approach to determine the optimal time to execute interventions on rail infrastructure, when it is not known for certain which intervention is to be executed, is presented (i.e. the optimal intervention window). Such an approach is useful in the management of rail infrastructure that belongs to a multi-national rail corridor where multiple railway organizations, ideally, should coordinate their maintenance interventions, years in advance, to minimize service disruptions. The approach is based on an adaptation of the Black and Scholes differential equation model used to value European call options in financial engineering. It is demonstrated by determining the optimal intervention window for infrastructure in a fictive rail corridor.

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The Appraisal of Assets’ Fair Value Using the Real Options Technique

Review of Business and Economics Studies ◽

10.26794/2308-944x-2020-8-2-43-76 ◽

2021 ◽

Vol 8 (2) ◽

pp. 43-76

Author(s):

A. Gulabyan

Keyword(s):

Real Options ◽

Real Option ◽

Real Life ◽

Fair Value ◽

Theoretical Background ◽

Asset Valuation ◽

The Real ◽

Traditional System ◽

Real Options Valuation ◽

Real Option Approach

The goal of this paper is to analyse and systematise the possible approaches to real options valuation, especially when considering the practical aspects of their application in real-life valuation problems. Therefore, the paper sets the following tasks: To outline the concept of fair value and analyse the traditional approaches to its calculation in the context of asset valuation To define the real-option approach to fair value estimation and analyse its theoretical background To determine the role of the real options approach in the traditional system of valuation techniques To analyse the practical aspects of their application in valuation problems considering the corresponding examples To provide the real-life example of this technique applied in current market conditions using the recent data. The object of this research is the option pricing models, and the subject is their application in estimation of real options embedded in corporate valuations, particularly considering the side.

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The State Value

10.21203/rs.3.rs-97507/v1 ◽

2020 ◽

Author(s):

Moustafa Ahmed AbdElaal ◽

Nesrien Mohamed Elmohamady

Keyword(s):

Real Option ◽

The State ◽

Market Condition ◽

Optimal Time ◽

Discounted Cash Flow ◽

Unlimited Number ◽

Number Of Factors ◽

Real Option Approach ◽

Pricing Factors ◽

The Government

Abstract This paper considers the state value using the real option approach. Our model allows adding unlimited number of factors which affects the state value. We adjusted Ornstein-Uhlenbeck stochastic process to be able to consider unlimited number of pricing factors to calculate the state value. We think this model may be useful to evaluate the performance of the government and making decision process via knowing the optimal value and the optimal time for the decision. This dynamic model differs from the traditional pricing model for evaluating the nation's wealth using the discounted cash flow model (DCF) which does not allows considering the market condition via using the risk-neutral approach. The states value determinants are divided into two classes, determinants and sub-determinants.

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Optimal timing of price change with strategic customers under demand uncertainty: A real option approach

Advances in Production Engineering & Management ◽

10.14743/apem2019.3.335 ◽

2019 ◽

Vol 14 (3) ◽

pp. 379-390 ◽

Cited By ~ 1

Author(s):

Y. Lee ◽

J.P. Lee ◽

S. Kim

Keyword(s):

Demand Uncertainty ◽

Real Option ◽

Price Change ◽

Optimal Timing ◽

Strategic Customers ◽

Real Option Approach

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

Kybernetes ◽

10.1108/k-02-2016-0025 ◽

2016 ◽

Vol 45 (10) ◽

pp. 1604-1616 ◽

Cited By ~ 1

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.

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