Optimal investment timing and location under uncertainty
نویسندگان
چکیده
We consider an investment problem such as a construction of power plants. The uncertainties, which are considered in this investment problem, are the evolution of cash flows obtained from the plant operation, and the catastrophic event, which drives the value of the project to zero due to external factors, such as earthquake. We show the model of a sequential investment as well as that of a single investment, and show the effect of the catastrophic event on the flexibility of the sequential decision by comparing the option values of the single investment and the sequential one. Additionally, in a case where both costs associated with the construction and the catastrophic event are dependent on the location, we determine simultaneously the optimal investment timing and location of the plant.
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