
handle: 2381/20621
This paper presents a simple discrete time model for valuing real options. A short and simple proof of optimal exercise rules for the standard problems in the real options theory is given in the binomial and trinomial models, and more generally, when the underlying uncertainty is modelled as a random walk on a lattice. The method of the paper is based on the use of the expected present value operators. With straightforward modifications, the method works in discrete time-continuous space, continuous time-continuous space and continuous time-discrete space models.
Real options, random walks on lattices, expected present value operators, Stopping times; optimal stopping problems; gambling theory, real options, embedded options, Sums of independent random variables; random walks, expected present value operators, Corporate finance (dividends, real options, etc.), jel: jel:D81, jel: jel:C61, jel: jel:G31, jel: jel:G12
Real options, random walks on lattices, expected present value operators, Stopping times; optimal stopping problems; gambling theory, real options, embedded options, Sums of independent random variables; random walks, expected present value operators, Corporate finance (dividends, real options, etc.), jel: jel:D81, jel: jel:C61, jel: jel:G31, jel: jel:G12
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