Pricing real options under the constant elasticity of variance diffusion
Autor(a) principal: | |
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Data de Publicação: | 2011 |
Outros Autores: | |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | https://ciencia.iscte-iul.pt/public/pub/id/9533 http://hdl.handle.net/10071/9166 |
Resumo: | Much of the work on real options assumes that the underlying state variable follows a geometric Brownian motion with constant volatility. This paper uses a more general assumption for the state variable process that better captures the empirical regularities found in commodity markets. We use the constant elasticity of variance diffusion, where volatility is a function of underlying asset prices, and we provide analytic solutions for perpetual American options. We show that a firm that uses the standard lognormal assumption is exposed to significant errors of analysis, which may lead to nonoptimal investment and disinvestment decisions. |
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Pricing real options under the constant elasticity of variance diffusionMuch of the work on real options assumes that the underlying state variable follows a geometric Brownian motion with constant volatility. This paper uses a more general assumption for the state variable process that better captures the empirical regularities found in commodity markets. We use the constant elasticity of variance diffusion, where volatility is a function of underlying asset prices, and we provide analytic solutions for perpetual American options. We show that a firm that uses the standard lognormal assumption is exposed to significant errors of analysis, which may lead to nonoptimal investment and disinvestment decisions.Wiley-Blackwell2015-07-03T16:51:12Z2011-01-01T00:00:00Z20112015-07-03T16:49:06Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttps://ciencia.iscte-iul.pt/public/pub/id/9533http://hdl.handle.net/10071/9166eng0270-731410.1002/fut.20468Dias, J. C.Nunes, J. P.info:eu-repo/semantics/embargoedAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2023-11-09T17:40:22Zoai:repositorio.iscte-iul.pt:10071/9166Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T22:18:41.075420Repositório 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 |
Pricing real options under the constant elasticity of variance diffusion |
title |
Pricing real options under the constant elasticity of variance diffusion |
spellingShingle |
Pricing real options under the constant elasticity of variance diffusion Dias, J. C. |
title_short |
Pricing real options under the constant elasticity of variance diffusion |
title_full |
Pricing real options under the constant elasticity of variance diffusion |
title_fullStr |
Pricing real options under the constant elasticity of variance diffusion |
title_full_unstemmed |
Pricing real options under the constant elasticity of variance diffusion |
title_sort |
Pricing real options under the constant elasticity of variance diffusion |
author |
Dias, J. C. |
author_facet |
Dias, J. C. Nunes, J. P. |
author_role |
author |
author2 |
Nunes, J. P. |
author2_role |
author |
dc.contributor.author.fl_str_mv |
Dias, J. C. Nunes, J. P. |
description |
Much of the work on real options assumes that the underlying state variable follows a geometric Brownian motion with constant volatility. This paper uses a more general assumption for the state variable process that better captures the empirical regularities found in commodity markets. We use the constant elasticity of variance diffusion, where volatility is a function of underlying asset prices, and we provide analytic solutions for perpetual American options. We show that a firm that uses the standard lognormal assumption is exposed to significant errors of analysis, which may lead to nonoptimal investment and disinvestment decisions. |
publishDate |
2011 |
dc.date.none.fl_str_mv |
2011-01-01T00:00:00Z 2011 2015-07-03T16:51:12Z 2015-07-03T16:49:06Z |
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://ciencia.iscte-iul.pt/public/pub/id/9533 http://hdl.handle.net/10071/9166 |
url |
https://ciencia.iscte-iul.pt/public/pub/id/9533 http://hdl.handle.net/10071/9166 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
0270-7314 10.1002/fut.20468 |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/embargoedAccess |
eu_rights_str_mv |
embargoedAccess |
dc.format.none.fl_str_mv |
application/pdf |
dc.publisher.none.fl_str_mv |
Wiley-Blackwell |
publisher.none.fl_str_mv |
Wiley-Blackwell |
dc.source.none.fl_str_mv |
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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 |
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