The Valuation of N-Phased Investment Projects under Jump-Diffusion Processes
23 Pages Posted: 30 Apr 2009 Last revised: 21 Jun 2018
Date Written: February 26, 2010
In this paper we consider N-phased investment opportunities where the time evolution of the project value follows a jump-diffusion process. An explicit valuation formula is derived under two different scenarios: in the first case we consider fixed and certain investment costs and in the second case we consider cost uncertainty and assume that investment costs follow a jump-diffusion process.
Keywords: N-fold compound options, sequential investments, jump-diffusion process
JEL Classification: G12, G13, G30, C60
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