This work is devoted to the discrete time hedging of the American option on a dividendpaying stock with a convex payoff, the particular case of which is American call option. Perfect hedging requires continuous trading in time and knowledge of the partial derivative of the value function of the American option in the underlying asset. Neither one can trade continuously in time nor the closed-fo...

We analyze multi-period harvest problems for a renewable resource under biological uncertainty when harvesting is size-dependant. First, we show that the decision to harvest can be modeled as a real option and we derive analytical expressions for the value of the resource stock and the mean time between harvests, with and without uncertainty. We then illustrate numerically how uncertainty affec...

The consistency and predictability of regulation is thought to be highly important for costly investment decisions. When the government lacks commitment power to maintain a promised policy, and firms are not perfectly competitive, investment levels are typically lower than when the government can commit. However, flexibility in policymaking is beneficial in that it allows for adjustment when co...

Recent events in financial markets have highlighted the frequency with which large scale financial losses occur. Extreme value theory focusses on the statistical properties of such extreme events. In this paper, extreme value distributions are applied in the context of option pricing. Analytic solutions to the standard European option problem based on the assumption that returns are Gumbel dist...

Financial options are known from the financial world where they represent the right to buy or sell a financial value (mostly a stock) for a predetermined price (the exercise price), without having the obligation to do so. Real options in option thinking are based on the same principals as financial options. In real options, the options involve real assets as opposed to financial ones. To have a...

We develop an integrated real options and industrial organization framework to quantify the strategic option value of technology investments. Strategic investments (e.g., R&D, capacity expansion or strategic acquisitions) are difficult to analyze based on standard approaches. Yet, it is these decisions that determine a firm’s competitive success in a changing technological and competitive lands...

A common practice in real estate markets is the sale of housing development units before completion, and in some cases even before beginning of the actual construction, known as presale. Developers that choose to presell units are subject to default on the part of the buyers if market conditions become unfavorable. In recent years, court rulings in Brazil have established that developers must r...

Here, the expected value is taken under an appropriate risk-adjusted measure. Furthermore, VT and IT represent the project’s value and amount to be invested, respectively, at time T . If the project can be started at anytime, then (1.1) is modified to its American counterpart. In this case, the maturity date T is replaced by a stopping time τ (0 ≤ τ ≤ T ) and the investor chooses the stopping t...