Optimal investment with two-factor uncertainty

• Type: Article in International Scientific Journal
• Date: 2013

Authors

Armada, Manuel R (Author) Other; Paulo Jorge Pereira (Author) FEP; Rodrigues, Artur (Author) FEP

Journal

Title: Mathematics and Financial Economics

Vol. 7 No. 4

Pages: 509-530

ISSN: 1862-9679

Publisher: Springer Nature

Indexing

ISI Web of Knowledge - 4 Citations

ISI Web of Science

Scopus - 4 Citations

Scientific classification

FOS: Social sciences > Economics and Business

Other information

Authenticus ID: P-008-CED

DOI: 10.1007/s11579-013-0101-1

Abstract (EN): This paper presents a real options model to value the option to invest in a project contingent on two stochastic factors. A general sensitivity analysis is conducted highlighting the importance of the variance and correlation between the two variables. A higher correlation is shown to increase always the values of the trigger, the active project and the option. The impact of uncertainty is more complex and depends on the assumption about which variables adjust and the correlation between the variables and the market. © 2013 Springer-Verlag Berlin Heidelberg.

Language: English

Type (Professor's evaluation): Scientific