Artículo
Real options with priced regime-switching risk
Fecha de publicación:
08/2013
Editorial:
World Scientific
Revista:
International Journal of Theoretical and Applied Finance
ISSN:
0219-0249
Idioma:
Inglés
Tipo de recurso:
Artículo publicado
Clasificación temática:
Resumen
We develop a model of regime-switching risk premia as well as regime-dependent factor risk premia to price real options. The model incorporates the observation that the underlying risky income streams of real options are subject to discrete shifts over time as well as random changes. The presence of discrete shifts is due to systematic and unsystematic risk associated with changes in business cycles or in economic policy regimes or events such as takeovers, major changes in business plans. We analyze the impact of regime-switching behavior on the valuation of projects and investment opportunities. We find that accounting for Markov switching risk results in a delay in the expected timing of the investment while the regime-specific factor risk premia make the possibility of a regime shift more pronounced.
Palabras clave:
REAL OPTIONS
,
REGIME-DEPENDENT RISK PREMIA
,
REGIME-SWITCHING RISK PREMIA
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Identificadores
Colecciones
Articulos(SEDE CENTRAL)
Articulos de SEDE CENTRAL
Articulos de SEDE CENTRAL
Citación
Driffill, John; Kenc, Turalay; Sola, Martin; Real options with priced regime-switching risk; World Scientific; International Journal of Theoretical and Applied Finance; 16; 5; 8-2013; 13500281-13500281
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