This paper extends the theory of real options, which mainly considers the problem of timing of investment, by letting the firm choose also the quantity produced after the time of investment. Under the conditions of irreversible investment and uncertainty in future demand, the firm can adjust its output quantity at each point in time in the future. Our paper shows that changing the structure of ...

We study a family of diffusion models for risk reserves which account for the investment income earned and for the inflation experienced on claim amounts. After we defined the process of the conditional probability of ruin over finite time and imposed the appropriate boundary conditions, classical results from the theory of diffusion processes turn the stochastic differential equation to a spec...

This paper analyzes the links between the firms investment technology and financial asset prices within a general equilibrium production economy. The model assumes that real investment is irreversible and subject to convex adjustment costs. It shows how these basic features of real investment naturally generate rich dynamics of stock returns. Firm investment activity and firm characteristics, p...

In this paper we present a preliminary approach to the evaluation of policies and projects based on current thinking on cost benefit analysis and real option methodology and the authors’ recent work on the same subject. We start from the assumption that economic agents undertake investment projects in order to create and exploit opportunities for increasing profits, growth, wealth and, ultimate...

Firms’systematic risk falls (increases) sharply following investment (disinvestment). This risk dynamics is driven by real investment and not by changes in …rm characteristics and is strongest among …rms with valuable investment opportunities, highly irreversible investment and low operating leverage. Consistent with rational pricing, …rms with poor investment opportunities, those most likely t...

Information Arrival and Real Investment We analyze the investment decision of the rm under uncertainty. The objective of the paper is to create a generic framework to investigate the respective roles of irreversible or sunk costs of investment and the nature of the resolution of uncertainty in determining the behavior of the hurdle rate. We show analytically that the mode of information arrival...

In the first part of the talk, an algorithm for solving continuous‐time stochastic optimal control problems is presented. The numerical scheme is based on the stochastic maximum principle (SMP) as an alternative to the widely studied dynamic programming principle (DPP). We show possible performance advantages of the algorithm in the case of feedback control. In the second...

the economy's dependence on oil revenues and derivatives of these products make the country's economy heavily influenced by the volatility and instability of the pricing of these products. therefore, it seems necessary to develop non-oil exports. this paper examines the causality relation and the effect of foreign direct investment, economic openness and real exchange rate on non-oil ...

The major oil industry upstream activities include the exploration, drilling, extraction, pipelines installation, and production of crude oil. In this paper, we develop a mathematical model to plan for theseoperations as a crude oil supply chain network design problem.The proposed multi-period mixed integer linear programming model entails both strategic (e.g., facility location and allocation)...