Entry and exit decisions based on a discount factor approach

Investment Lags - A Numerical Approach

“…Additionally, we have shown the the results presented in this paper are as accurate as the results presented in Sødal (2006) for the GBM process. Moreover, we have applied this model on other stochastic process such as CIR mean reversion process and have shown the results.…”

“…We can notice in this figure that P H is higher than P L , which is to be expected since we should only invest if the price is higher than the abandon price. Now we compare our results to those of Sødal (2006) in figure 3, and we find that our method generates values of P L and P H that are very close to the previous method. To demonstrate the integrity of our scheme, in figure 2 we plot the value of P L for an increasing number of nodes.…”

“…Although this problem has been solved in Bar-Ilan and Strange (1996) and later again by Sødal (2006), in this paper we present a new methodology which gives more flexibility to the practitioner. The idea is to solve the problem using finite differences with bodyfitted co-ordinates to quickly solve for P H and P L .…”

Developing real option game models

“…"Exit options" ("EO") are considered in a continuous-time framework for monopolies under uncertainty, by Dixit (1989), Alvarez (1998Alvarez ( , 1999 and SØdal (2006), among others, and, in a determinist framework for duopolies, by Ghemawat and Nalebuff (1985) and Fudenberg and Tirole (1986). However, with very few exceptions, EO have been neglected in ROG.…”

Irreversible Investment, Operating Flexibility, and Time Lags

“…The closest work to this paper includes those of Aguerrevere (2003) and Sødal (2006). Aguerrevere (2003) analyzes the optimal capacity choice taking into account ws-apjor Irreversible Investment,Operating Flexibility,and Time Lags 3 investment option and operating flexibility a , which implies that the unit of capacity can be started up or shut-down without cost.…”