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Comments on the Investment-Uncertainty Relationship in a Real Option Model
Michele Moretto University of Padua - Department of Economics; Fondazione Eni Enrico Mattei (FEEM) Nunzio Cappuccio University of Padua - Department of Economics April 2001 FEEM Working Paper No. 28.2001 Abstract: The paper considers the problem of evaluating the probability of investing in a capital-investment project as a measure of the uncertainty-investment relationship in a real option model. By the use of the contingent claims analysis the opportunity to invest is modelled as an American call option with expiring time. We show that an increase in uncertainty of the project may actually have positive or negative effects on the probability of investing depending on which market parameters are called to restore the asset price equilibrium condition.
Keywords: Investment, uncertainty, real options JEL Classifications: C6, E2 Working Paper SeriesDate posted: July 24, 2001 ; Last revised: September 01, 2001Suggested CitationContact Information
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