[PDF] A Stochastic Control Framework For Real Options In Strategic Evaluation eBook

Author : Alexander Vollert
Publisher : Springer Science & Business Media
Page : 275 pages
File Size : 19,39 MB
Release : 2012-12-06
Category : Mathematics
ISBN : 1461220688

GET BOOK

The theoretical foundation for real options goes back to the mid 1980s and the development of a model that forms the basis for many current applications of real option theory. Over the last decade the theory has rapidly expanded and become enriched thanks to increasing research activity. Modern real option theory may be used for the valuation of entire companies as well as for particular investment projects in the presence of uncertainty. As such, the theory of real options can serve as a tool for more practically oriented decision making, providing management with strategies maximizing its capital market value. This book is devoted to examining a new framework for classifying real options from a management and a valuation perspective, giving the advantages and disadvantages of the real option approach. Impulse control theory and the theory of optimal stopping combined with methods of mathematical finance are used to construct arbitrarily complex real option models which can be solved numerically and which yield optimal capital market strategies and values. Various examples are given to demonstrate the potential of this framework. This work will benefit the financial community, companies, as well as academics in mathematical finance by providing an important extension of real option research from both a theoretical and practical point of view.

Author : Alexander Vollert
Publisher : Birkhauser
Page : 266 pages
File Size : 21,56 MB
Release : 2003
Category : Business enterprises
ISBN : 9783764342586

GET BOOK

This text unfolds and examines a new framework for classifying real options from a management as well as a valuation perspective, giving the advantages and disadvantages of the real option approach. Impulse control theory and the theory of optimal stopping combined with methods of mathematical finance are used to construct arbitrarily complex real option models which can be solved numerically and yield optimal capital market strategies and values. Various examples are given, demonstrating the potential of the proposed framework.

Author : Christian Maxwell
Publisher :
Page : 308 pages
File Size : 24,63 MB
Release : 2014
Category :
ISBN :

GET BOOK

We present three interesting applications of stochastic control in nance. The rst is a real option model that considers the optimal entry into and subsequent operation of a biofuel production facility. We derive the associated Hamilton Jacobi Bellman (HJB) equation for the entry and operating decisions along with the econometric analysis of the stochastic price inputs. We follow with a Monte Carlo analysis of the risk pro le for the facility. The second application expands on the analysis of the biofuel facility to account for the associated regulatory and taxation uncertainty experienced by players in the renewables and energy industries. A federal biofuel production subsidy per gallon has been available to producers for many years but the subsidy price level has changed repeatedly. We model this uncertain price as a jump process. We present and solve the HJB equations for the associated multidimensional jump di usion problem which also addresses the model uncertainty pervasive in real option problems such as these. The novel real option framework we present has many applications for industry practitioners and policy makers dealing with country risk or regulatory uncertainty which is a very real problem in our current global environment. Our final application (which, although apparently different from the first two applications, uses the same tools) addresses the problem of producing reliable bid-ask spreads for derivatives in illiquid markets. We focus on the hedging of over the counter (OTC) equity derivatives where the underlying assets realistically have transaction costs and possible illiquidity which standard nance models such as Black- Scholes neglect. We present a model for hedging under market impact (such as bid-ask spreads, order book depth, liquidity) using temporary and permanent equity price impact functions and derive the associated HJB equations for the problem. This model transitions from continuous to impulse trading (control) with the introduction of xed trading costs. We then price and hedge via the economically sound framework of utility indi erence pricing. The problem of hedging under liquidity impact is an on-going concern of market makers following the Global Financial Crisis.

Author : Salvatore Federico
Publisher :
Page : 206 pages
File Size : 11,86 MB
Release : 2020-06-23
Category :
ISBN : 9783039360581

GET BOOK

In a world dominated by uncertainty, modeling and understanding the optimal behavior of agents is of the utmost importance. Many problems in economics, finance, and actuarial science naturally require decision makers to undertake choices in stochastic environments. Examples include optimal individual consumption and retirement choices, optimal management of portfolios and risk, hedging, optimal timing issues in pricing American options, and investment decisions. Stochastic control theory provides the methods and results to tackle all such problems. This book is a collection of the papers published in the Special Issue "Applications of Stochastic Optimal Control to Economics and Finance", which appeared in the open access journal Risks in 2019. It contains seven peer-reviewed papers dealing with stochastic control models motivated by important questions in economics and finance. Each model is rigorously mathematically funded and treated, and the numerical methods are employed to derive the optimal solution. The topics of the book's chapters range from optimal public debt management to optimal reinsurance, real options in energy markets, and optimal portfolio choice in partial and complete information settings. From a mathematical point of view, techniques and arguments of dynamic programming theory, filtering theory, optimal stopping, one-dimensional diffusions and multi-dimensional jump processes are used.

Author : Jeffrey J. Reuer
Publisher : Emerald Group Publishing
Page : 520 pages
File Size : 44,98 MB
Release : 2007-07-05
Category : Business & Economics
ISBN : 1849504946

GET BOOK

Examines the ways in which real options theory can contribute to strategic management. This volume offers conceptual pieces that trace out pathways for the theory to move forward and presents research on the implications of real options for strategic investment, organization, and firm performance.

Author : Lenos Trigeorgis
Publisher : Praeger
Page : 0 pages
File Size : 39,18 MB
Release : 1995-01-24
Category : Business & Economics
ISBN : 0275946169

GET BOOK

This compilation integrates various new contributions to the growing real options literature. Recent developments in the valuation of capital investment opportunities seen as real options (e.g. to defer, expand, abandon, or switch) have provided the tools and unlocked the possibilities to revolutionize the field of capital budgeting. The resulting insights, strategies, and techniques enable quantifying the thus far elusive elements of managerial operating flexibility and strategic interactions. These are vital to successfully capitalize on favorable future investment opportunities or limit losses from adverse market developments. This book presents various models and operating strategies, and a variety of applications ranging from acquisitions and divestitures, to natural resource development and pollution compliance. It is intended for both the academic and the professional market. The book's contributions are divided into five parts, covering sections on real options and alternative valuation paradigms for capital investment analysis; on the analysis of general exchange or switching options, and interdependencies among multiple such options; on strategic acquisitions, infrastructure, and foreign investment options; on mean reversion/ alternative formulations in natural resource investments, shipping, and start-up ventures; and on other applications in pollution compliance, land development, flexible manufacturing, and financial default options. Both academic and practitioner interest in these developments is unusually high. The book can serve as supplementary material for the academic market, e.g., in advanced finance courses in option pricing or capital budgeting, in doctoral seminars, and as a library resource. It may also be of interest to the professional market (e.g. corporate planners and finance executives in the oil, pharmaceutical, auto and a variety of other industries), academics from related areas (e.g. decision analysts or economists), as well as to international readers (academics, doctoral students, and professionals).

Author : Robert J. Elliot
Publisher : World Scientific
Page : 605 pages
File Size : 40,38 MB
Release : 2012
Category : Mathematics
ISBN : 9814383309

GET BOOK

This Festschrift is dedicated to Robert J Elliott on the occasion of his 70th birthday It brings together a collection of chapters by distinguished and eminent scholars in the fields of stochastic processes, filtering and control, as well as their applications to mathematical finance It presents cutting edge developments in these fields and is a valuable source of references for researchers, graduate students and market practitioners in mathematical finance and financial engineering Topics include the theory of stochastic processes, differential and stochastic games, mathematical finance, filtering and control.