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...

Protest bids are often excluded during analysis of contingent valuation method data. It is suggested that this procedure might introduce significant bias. Protest bids are often registered by respondents who may actually place a higheror lower-than-average value on the commodity in question but refuse to pay on the basis of ethical or other reasons, Exclusion of protest bids may therefore bias ...

There is a growing literature that promotes the notion of process heterogeneity in the way that individuals evaluate packages of attributes in real or hypothetical markets and make choices. Empirical evidence suggests that individuals use a number of processing strategies such as cancellation, referencing, and attribute aggregation, the latter occurring where there is a common metric. In this p...

Several real options analysis techniques designed for practitioners exist in literature, but there is discrepancy in their underlying assumptions, mechanics and applicability. Within this paper, a review of approaches targeted towards practitioners is included, and a novel way of integrating market and private uncertainties is proposed. Market risk is incorporated into the dynamics of the proje...

Sensitivity analysis identifies the critical aspects of the investment model that affect model output uncertainty. Common sensitivity analysis on options considers how the solution changes as a result of change in one of the key parameters (underlying asset value, volatility, exercise price, interest rate, time to maturity, dividends). In case of cash flow simulation based real options, these a...

A replacement model is presented for a productive asset subject to stochastic input decay, tax allowances due to a deterministic depreciation variable, and a fixed investment cost. The risk neutral valuation function is formulated and optimal trigger levels signalling replacement for the two factors is determined analytically although not as a closed-form solution. We demonstrate that the opera...

Batch distillation processes have gained renewed interest because of the recent development in small-scale industries producing high-value-added, low-volume specialty chemicals. The flexibility and unsteady state nature of batch distillation constitute a challenge for the designer. A particularly difficult problem is the optimal control problem involving open loop solution for the reflux ratio ...

The value of a college degree is often quantified as the difference in earnings between those with and without a degree. The research presented here operationalizes this idea in two important ways. First, since future income and tuition are uncertain, a contingent claims model is developed and the appropriate discount rate for valuing future earnings is, therefore, endogenized given an economy ...

In recent years, the world’s mobile market is transformed by E-3G UMTS and 4G mobile networks. Typically, infrastructure costs and revenue are two critical factors of any decision-making in regard to investment in 4G mobile network industry. The objectives of the study are categorized as follows: (1) to introduce real option theory and to discuss its applicability as a decision support tool, (2...