Investment timing under uncertainty: Real options, process specification and convenience yields.

摘要

This dissertation investigates issues of irreversible investment when decision makers have the option to delay the undertaking of a project. The real options literature has mainly considered such models with a simple stochastic process, usually the geometric diffusion process. It is shown that issues of process specification can be separated from those of the properties idiosyncratic to the project at hand. This offers a valuable simplification since one only needs to value the discount factor specific to any Ito process once and for all. The example of copper is expanded upon using a mean reverting process. The methodology is detailed and results are provided that can be immediately used to decide on the optimal time to undertake any project contingent on the price of copper.; The case where the underlying process can take jumps is introduced in the second chapter. This case is particularly complicated since exercise can now happen inside the exercise region, and therefore the value at exercise is uncertain. The paper develops the analytic tools necessary to solve the problem and looks at potential misestimations that arise from the common assumption of Ito processes. The methodology is used to link the value of corporate debt to the properties of the process followed by the asset value of the firm.; Finally convenience yields in the term structure of interest rates are considered. These yields take the form of liquidity premia and have been identified as potential reasons for an observed anomaly in financial markets: the equity premium puzzle. A model is designed to identify the possible effect of those yields. It is found that the puzzle remains even when the liquidity premia are accounted for.