Option pricing methods for estimating capacity shortages

Pak, Dohyun; Ryan, Sarah M.

doi:10.31274/rtd-20210128-84

Cited by 2 publications

(2 citation statements)

References 5 publications

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“…In Chapter 5, we incorporated the technological progress into the capacity expansion models with lead time of construction. We modified the previous works by Ryan (2000) and Pak (2001) with both deterministic and uncertain technological progress. We used the Summing European option value in order to estimate the capacity shortage during the lead time of expansion.…”

Section: Discussionmentioning

confidence: 99%

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Capacity expansion with technological change

Pornsalnuwat¹

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Section: Discussionmentioning

confidence: 99%

“…To obtain an accurate estimation of shortage with a reasonable amount of computation, Pak (2001) Let Sn be the expected shortage estimated by the Summing European Option method.…”

Section: Kn-i Komentioning

confidence: 99%

Capacity expansion with technological change

Pornsalnuwat¹

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The Effect of Technological Improvement on Capacity Expansion for Uncertain Exponential Demand With Lead Times

Pak

Pornsalnuwat

Ryan

2004

The Engineering Economist

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We formulate a model of capacity expansion that is relevant to a service provider for whom the cost of capacity shortages would be considerable but difficult to quantify exactly. Due to demand uncertainty and a lead time for adding capacity, not all shortages are avoidable. In addition, technological innovations will reduce the cost of adding capacity but may not be completely predictable. Analytical expressions for the infinite horizon expansion cost and shortages are optimized numerically. Sensitivity analyses allow us to determine the impact of technological change on the optimal timing and sizes of capacity expansions to account for economies of scale, the time value of money and penalties for insufficient capacity. The Effect of Technological Improvement on Capacity Expansion for Uncertain Exponential Demand with Lead Times AbstractWe formulate a model of capacity expansion that is relevant to a service provider for whom the cost of capacity shortages would be considerable but difficult to quantify exactly. Due to demand uncertainty and a lead time for adding capacity, not all shortages are avoidable. In addition, technological innovations will reduce the cost of adding capacity but may not be completely predictable. Analytical expressions for the infinite horizon expansion cost and shortages are optimized numerically. Sensitivity analyses allow us to determine the impact of technological change on the optimal timing and sizes of capacity expansions to account for economies of scale, the time value of money and penalties for insufficient capacity.

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Option pricing methods for estimating capacity shortages

Cited by 2 publications

References 5 publications

Capacity expansion with technological change

Capacity expansion with technological change

The Effect of Technological Improvement on Capacity Expansion for Uncertain Exponential Demand With Lead Times

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