Investment decisions with finite-lived collars
Autor(a) principal: | |
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Data de Publicação: | 2019 |
Outros Autores: | , , |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | https://hdl.handle.net/1822/65729 |
Resumo: | The duration of most collar arrangements provided by governments to encourage early investment in infrastructure, renewable energy facilities, or other projects with social objectives are finite, not perpetual. We extend the previous literature on collar-style arrangements by providing an analytical solution for the idle and active values, as well as the investment triggers, for projects where collars are either finite-lived or retractable. What is the difference between these types of arrangements with their perpetual counterpart? Lots, including different vega signs, and substantially different values for different current price levels. Often, finite and retractable collars justify earlier investment timing than perpetual collars. In general, we demonstrate that the finite-lived and retractable versions have a significant impact on optimal behavior, relative to the perpetual case. An important consideration when negotiating the floors, ceilings, and duration (or signalling the expected duration) of a finite or a retractable collar is the current price level of the output and its expected volatility over the life of the contract. (C) 2019 Elsevier B.V. All rights reserved. |
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Investment decisions with finite-lived collarsFinite collarsPerpetual collarsRetractable collarsInvestment opportunitiesCiências Sociais::Economia e GestãoSocial SciencesThe duration of most collar arrangements provided by governments to encourage early investment in infrastructure, renewable energy facilities, or other projects with social objectives are finite, not perpetual. We extend the previous literature on collar-style arrangements by providing an analytical solution for the idle and active values, as well as the investment triggers, for projects where collars are either finite-lived or retractable. What is the difference between these types of arrangements with their perpetual counterpart? Lots, including different vega signs, and substantially different values for different current price levels. Often, finite and retractable collars justify earlier investment timing than perpetual collars. In general, we demonstrate that the finite-lived and retractable versions have a significant impact on optimal behavior, relative to the perpetual case. An important consideration when negotiating the floors, ceilings, and duration (or signalling the expected duration) of a finite or a retractable collar is the current price level of the output and its expected volatility over the life of the contract. (C) 2019 Elsevier B.V. All rights reserved.We thank the anonymous referees, Luiz Brandao, Glaucia Fernandes, other participants at the ROC 2018 and Stein-Erik Fleten (the discussant) for helpful comments on previous versions. This work was carried out within the funding with COMPETE reference n. POCI-01-0145-FEDER-006683 (Artur Rodrigues) and POCI-01-0145-FEDER-006890 (Paulo J. Pereira), FCT/MEC's (Fundacao para a Ciencia e a Tecnologia, I.P.) financial support through national funding and by ERDF through the Operational Programme on Competitiveness and Internationalization - COMPETE 2020 under the PT2020 Partnership Agreement.Elsevier Science BVUniversidade do MinhoAdkins, RogerPaxson, DeanPereira, Paulo J.Rodrigues, Artur2019-06-012019-06-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttps://hdl.handle.net/1822/65729engAdkins, R., Paxson, D., Pereira, P. J., & Rodrigues, A. (2019). Investment decisions with finite-lived collars. Journal of Economic Dynamics and Control, 103, 185-2040165-18891879-174310.1016/j.jedc.2019.04.008https://www.sciencedirect.com/science/article/pii/S0165188918302999info:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2023-10-07T01:20:54Zoai:repositorium.sdum.uminho.pt:1822/65729Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T19:10:03.160654Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
Investment decisions with finite-lived collars |
title |
Investment decisions with finite-lived collars |
spellingShingle |
Investment decisions with finite-lived collars Adkins, Roger Finite collars Perpetual collars Retractable collars Investment opportunities Ciências Sociais::Economia e Gestão Social Sciences |
title_short |
Investment decisions with finite-lived collars |
title_full |
Investment decisions with finite-lived collars |
title_fullStr |
Investment decisions with finite-lived collars |
title_full_unstemmed |
Investment decisions with finite-lived collars |
title_sort |
Investment decisions with finite-lived collars |
author |
Adkins, Roger |
author_facet |
Adkins, Roger Paxson, Dean Pereira, Paulo J. Rodrigues, Artur |
author_role |
author |
author2 |
Paxson, Dean Pereira, Paulo J. Rodrigues, Artur |
author2_role |
author author author |
dc.contributor.none.fl_str_mv |
Universidade do Minho |
dc.contributor.author.fl_str_mv |
Adkins, Roger Paxson, Dean Pereira, Paulo J. Rodrigues, Artur |
dc.subject.por.fl_str_mv |
Finite collars Perpetual collars Retractable collars Investment opportunities Ciências Sociais::Economia e Gestão Social Sciences |
topic |
Finite collars Perpetual collars Retractable collars Investment opportunities Ciências Sociais::Economia e Gestão Social Sciences |
description |
The duration of most collar arrangements provided by governments to encourage early investment in infrastructure, renewable energy facilities, or other projects with social objectives are finite, not perpetual. We extend the previous literature on collar-style arrangements by providing an analytical solution for the idle and active values, as well as the investment triggers, for projects where collars are either finite-lived or retractable. What is the difference between these types of arrangements with their perpetual counterpart? Lots, including different vega signs, and substantially different values for different current price levels. Often, finite and retractable collars justify earlier investment timing than perpetual collars. In general, we demonstrate that the finite-lived and retractable versions have a significant impact on optimal behavior, relative to the perpetual case. An important consideration when negotiating the floors, ceilings, and duration (or signalling the expected duration) of a finite or a retractable collar is the current price level of the output and its expected volatility over the life of the contract. (C) 2019 Elsevier B.V. All rights reserved. |
publishDate |
2019 |
dc.date.none.fl_str_mv |
2019-06-01 2019-06-01T00:00:00Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
https://hdl.handle.net/1822/65729 |
url |
https://hdl.handle.net/1822/65729 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
Adkins, R., Paxson, D., Pereira, P. J., & Rodrigues, A. (2019). Investment decisions with finite-lived collars. Journal of Economic Dynamics and Control, 103, 185-204 0165-1889 1879-1743 10.1016/j.jedc.2019.04.008 https://www.sciencedirect.com/science/article/pii/S0165188918302999 |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
application/pdf |
dc.publisher.none.fl_str_mv |
Elsevier Science BV |
publisher.none.fl_str_mv |
Elsevier Science BV |
dc.source.none.fl_str_mv |
reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação instacron:RCAAP |
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Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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RCAAP |
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RCAAP |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
repository.mail.fl_str_mv |
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1799132528531996672 |