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|Title:||Pricing real options under the constant elasticity of variance diffusion|
|Authors:||Dias, J. C.|
Nunes, J. P.
|Abstract:||Much of the work on real options assumes that the underlying state variable follows a geometric Brownian motion with constant volatility. This paper uses a more general assumption for the state variable process that better captures the empirical regularities found in commodity markets. We use the constant elasticity of variance diffusion, where volatility is a function of underlying asset prices, and we provide analytic solutions for perpetual American options. We show that a firm that uses the standard lognormal assumption is exposed to significant errors of analysis, which may lead to nonoptimal investment and disinvestment decisions.|
|Description:||WOS:000286492000002 (Nº de Acesso Web of Science)|
|Publisher version:||The definitive version is available at: http://dx.doi.org/10.1002/fut.20468|
|Appears in Collections:||BRU-RI - Artigo em revista científica internacional com arbitragem científica|
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|publisher_version_Dias_et_al_2011_Journal_of_Futures_Markets.pdf||149.15 kB||Adobe PDF||View/Open Request a copy|
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