Real options with illiquidity of exercise opportunities

Nishihara, Michi

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論文情報

タイトル	Real options with illiquidity of exercise opportunities
著者	Nishihara, Michi Nishihara, Michi
キーワード等	real option
	net present value
	regime switching
	liquidity
	search theory
抄録	This paper presents a framework to study real options with illiquidity of option exercise opportunities. I incorporate a constraint that the investment time is chosen from Poisson arrival times in the standard real option value (ROV) model. I derive the closed-form solution and show that illiquidity decreases the option value of waiting and the investment threshold. I extend the results to a case with different types of projects and show that an inferior project can be undertaken in the presence of illiquidity. I prove that the solution of the illiquid model converges to that of the ROV model for higher liquidity and converges to that of the net present value (NPV) model for lower liquidity. I also show that the solution agrees with the limit of the corresponding regime-switching model. The results fill the gaps in the NPV, ROV, and regime-switching models and reveal the effects of illiquidity on investment decisions.
公開者	Graduate School of Economics and Osaka School of International Public Policy (OSIPP) Osaka University
掲載誌名	Discussion Papers In Economics And Business
巻	19-01
開始ページ	1
終了ページ	34
刊行年月	2019-03
URL	http://hdl.handle.net/11094/71323
関連情報 (references)	http://www2.econ.osaka-u.ac.jp/library/global/dp/1901.pdf
言語	英語
カテゴリ	ディスカッション／ワーキング・ペーパー DP/WP

著者版フラグ	none
NII資源タイプ	テクニカルレポート
ローカル資源タイプ	ディスカッション／ワーキング・ペーパー
dcmi資源タイプ	text
DCTERMS.bibliographicCitation	Discussion Papers In Economics And Business.19-01 P.1-P.34
DC.title	Real options with illiquidity of exercise opportunities
DC.creator	Nishihara, Michi
DC.publisher	Graduate School of Economics and Osaka School of International Public Policy (OSIPP) Osaka University
DC.language" scheme="DCTERMS.RFC1766	英語
DCTERMS.issued" scheme="DCTERMS.W3CDTF	2019-03
DC.identifier" scheme="DCTERMS.URI	http://hdl.handle.net/11094/71323
DC.subject	real option
	net present value
	regime switching
	liquidity
	search theory
DCTERMS.abstract	This paper presents a framework to study real options with illiquidity of option exercise opportunities. I incorporate a constraint that the investment time is chosen from Poisson arrival times in the standard real option value (ROV) model. I derive the closed-form solution and show that illiquidity decreases the option value of waiting and the investment threshold. I extend the results to a case with different types of projects and show that an inferior project can be undertaken in the presence of illiquidity. I prove that the solution of the illiquid model converges to that of the ROV model for higher liquidity and converges to that of the net present value (NPV) model for lower liquidity. I also show that the solution agrees with the limit of the corresponding regime-switching model. The results fill the gaps in the NPV, ROV, and regime-switching models and reveal the effects of illiquidity on investment decisions.
citation_title	Real options with illiquidity of exercise opportunities
citation_author	Nishihara, Michi
citation_publisher	Graduate School of Economics and Osaka School of International Public Policy (OSIPP) Osaka University
citation_language	英語
citation_date	2019-03
citation_journal_title	Discussion Papers In Economics And Business
citation_volume	19-01
citation_firstpage	1
citation_lastpage	34
citation_public_url	http://hdl.handle.net/11094/71323
citation_keywords	real option
	net present value
	regime switching
	liquidity
	search theory

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