This paper presents a recombining trinomial tree for valuing real options with changing volatility. The trinomial tree presented in this paper is constructed by simultaneously choosing such a parameterization that sets a judicious state space while having sensible transition probabilities between the nodes. The volatility changes are modeled with the changing transition probabilities while the ...

Building on concepts from a resource-based view of a firm and real option theory we propose a model that describes the links between a firm options development and the expected profitability. Empirical results of structural equation models on the video-game industry indicate that (i) the balance between industry innovativeness and firm inno-vativeness affects the perception of potential option,...

Many transport policies and innovations are liable to have implications for human health and safety. How should such implications be weighed against the other costs and benefits? In particular, when policy makers are undertaking social cost-benefit analysis, what monetary value should be attached to any health or safety components? Standard welfare economics suggests that the answer should refl...

I study how strategic alliances and their impact on future competitive incentives can motivate interfirm equity sales. In the model, an alliance between an entrepreneurial firm and an established firm improves efficiency for both. However, the requisite knowledge transfer heightens the established firm’s incentive to enter one of its partner’s markets. I show that equity can eliminate the entry...

T decision analysis methods can provide an intuitive approach to valuing projects with managerial flexibility or real options. The discrete-time approach to real-option valuation has typically been implemented in the finance literature using a binomial lattice framework. Instead, we use a binomial decision tree with risk-neutral probabilities to approximate the uncertainty associated with the c...

This paper considers the problem of investment timing under uncertainty in a duopoly framework. When both firms want to be the first investor a coordination problem arises. Here, a method is proposed to deal with this coordination problem, involving the use of symmetric mixed strategies. The method is based on Fudenberg and Tirole (1985, Review of Economic Studies), where it was designed within...

A main issue in valuation modeling is the correct choice of the stochastic process that better describes the asset price performance. Particularly, in investment projects that show a high level of managerial flexibility in conditions of uncertainty – for which it would be proposed the real option valuation models – the assumption of a specific process can have an impact not only on the project ...

This study is an attempt to overcome the lack of reliable estimates on the willingness of Malaysian users to pay for public transportation (particularly buses) through a combined analysis of a fuzzy analytical hierarchy process (F-AHP) and the Taguchi method. This is a ground-breaking study in the attempt to evaluate the bus users’ satisfaction factors based on the F-AHP, and find the pattern f...

This paper examines the determinants of the decision of low-income renters to move out of their current dwelling. Maximum score estimation is shown t be superior to ordinary discrete choice estimation techniques (probit, logit) for this problem, ad for similar discrete choices that require revering a previously optimal decision. The estimation reveals psychological costs f moving for typical lo...