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| Author: | Rhys, H, Song, J. Jindrichovska, I. |
| Title: | The Timing of Real Option Exercise: Some Recent Developments |
| Journal: | Engineering Economist
2002 : VOL. 47:4, p. 436-450 |
| Index terms: | OPTIONS MODELS ANALYTICAL REVIEW |
| Language: | eng |
| Abstract: | This paper briefly reviews one recent development in real options modeling. This development aims to extend traditional real options models. The authors show that previous models are incomplete in that only the optimal action threshold is derived. The new literature aims to provide further information on optimal option exercise. By introducing the first passage time approach, empirically testable propositions on the probability of option exercise and the expected waiting time before an option is exercised are provided. The purpose of this paper is to review some recent research that aims to extend the standard models. Careful readers may have noticed one striking common trend in this class of models. They all terminate at the derivation and characterization of an optimal action threshold. |
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