Investment Under Uncertainty - the Case of Repeated Investment Options

U of Aarhus Working Paper No. 2000-15

Posted: 17 Aug 2001

See all articles by Nikolaj Malchow-Moeller

Nikolaj Malchow-Moeller

Copenhagen Business School - Center for Economic and Business Research (CEBR); University of Southern Denmark

Bo Jellesmark Thorsen

Royal Veterinary and Agricultural University

Abstract

This paper considers optimal investment behaviour when investment options evolve deterministically or stochastically over time and investments are irreversible and indivisible. It extends the standard investment-under-uncertainty set-up with a single investment option to the case of repeated options. Analytical solutions are derived for the deterministic case and for the case of a geometric Brownian motion. It is argued that when investment options are repeated, the simple net-present-value rule in general fares better as an investment criterion than the rule derived from the single-option approach. Furthermore, sensitivity analyses reveal that the effects of parameter changes are very different when using the repeated-options approach instead of the single-option approach.

JEL Classification: D1, D9, O3, Q12

Suggested Citation

Malchow-Moeller, Nikolaj and Thorsen, Bo Jellesmark, Investment Under Uncertainty - the Case of Repeated Investment Options. U of Aarhus Working Paper No. 2000-15. Available at SSRN: https://ssrn.com/abstract=255591

Nikolaj Malchow-Moeller (Contact Author)

Copenhagen Business School - Center for Economic and Business Research (CEBR) ( email )

Solbjerg Plads 3
Copenhagen, DK-2000
Denmark

University of Southern Denmark

Campusvej 55
DK-5230 Odense, 5000
Denmark

Bo Jellesmark Thorsen

Royal Veterinary and Agricultural University ( email )

Forest and Landscape
Department of Economics, Politic and Planning
DK-2970 Hoersholm, Copenhagen
Denmark
+45 35 28 17 00 (Phone)
+45 35 28 15 17 (Fax)

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