The real options approach to valuation - Haskayne School of Business
The real options approach to valuation - Haskayne School of Business
The real options approach to valuation - Haskayne School of Business
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Value <strong>of</strong> the Investment Opportunity: F(C,K,t) MaxI1 2 2 1 22[ φ C FCC+ σ ( IK)FKK+ φσρC(IK)2 2IF + F − ( r + λ)F − I]= 0Kt1FCK+ α * CFC−Subject <strong>to</strong> boundary condi*on at comple*on <strong>of</strong> investment: F ( C,0,τ ) = V ( C,τ )Problem with this is that *me <strong>of</strong> comple*on is random.
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