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- Publisher Website: 10.1007/s10845-017-1299-1
- Scopus: eid_2-s2.0-85011933866
- WOS: WOS:000487969600008
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Article: The optimal time to make a risky investment under a permanent exit option
Title | The optimal time to make a risky investment under a permanent exit option |
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Authors | |
Keywords | Decision analysis Investment criteria Real options theory |
Issue Date | 2019 |
Citation | Journal of Intelligent Manufacturing, 2019, v. 30, p. 2669-2680 How to Cite? |
Abstract | We study an optimal investment policy of a risky project when there exists the possibility that a firm may permanently exit the business under deeply deteriorated market conditions in the future. To capture the riskiness of the investment return rate, a Geometric Brownian motion is adopted to model the firm’s profit stream. Applying the real options framework, this paper aims at characterizing the firm’s optimal investment policy of the risky project under permanent exit option. It is shown that the investment threshold is no longer a monotonic function of the market uncertainty. Specifically, the investment threshold can decrease with market uncertainty for moderate uncertainty. And the investment threshold will eventually increase with market uncertainty if the uncertainty becomes sufficiently high. Extensive numerical experiments are conducted to check the robustness of the theoretic results. Some managerial implications are derived for investment decisions under the exit option. |
Persistent Identifier | http://hdl.handle.net/10722/238656 |
ISSN | 2023 Impact Factor: 5.9 2023 SCImago Journal Rankings: 2.071 |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Li, Q | - |
dc.contributor.author | Wang, J | - |
dc.contributor.author | Ni, J | - |
dc.contributor.author | Chu, LK | - |
dc.contributor.author | Li, CD | - |
dc.date.accessioned | 2017-02-20T01:24:24Z | - |
dc.date.available | 2017-02-20T01:24:24Z | - |
dc.date.issued | 2019 | - |
dc.identifier.citation | Journal of Intelligent Manufacturing, 2019, v. 30, p. 2669-2680 | - |
dc.identifier.issn | 0956-5515 | - |
dc.identifier.uri | http://hdl.handle.net/10722/238656 | - |
dc.description.abstract | We study an optimal investment policy of a risky project when there exists the possibility that a firm may permanently exit the business under deeply deteriorated market conditions in the future. To capture the riskiness of the investment return rate, a Geometric Brownian motion is adopted to model the firm’s profit stream. Applying the real options framework, this paper aims at characterizing the firm’s optimal investment policy of the risky project under permanent exit option. It is shown that the investment threshold is no longer a monotonic function of the market uncertainty. Specifically, the investment threshold can decrease with market uncertainty for moderate uncertainty. And the investment threshold will eventually increase with market uncertainty if the uncertainty becomes sufficiently high. Extensive numerical experiments are conducted to check the robustness of the theoretic results. Some managerial implications are derived for investment decisions under the exit option. | - |
dc.language | eng | - |
dc.relation.ispartof | Journal of Intelligent Manufacturing | - |
dc.subject | Decision analysis | - |
dc.subject | Investment criteria | - |
dc.subject | Real options theory | - |
dc.title | The optimal time to make a risky investment under a permanent exit option | - |
dc.type | Article | - |
dc.identifier.email | Li, Q: liqiang@connect.hku.hk | - |
dc.identifier.email | Wang, J: jwwang@hku.hk | - |
dc.identifier.email | Ni, J: efdsafgz@hku.hk | - |
dc.identifier.email | Chu, LK: lkchu@hkucc.hku.hk | - |
dc.identifier.authority | Wang, J=rp01888 | - |
dc.identifier.authority | Chu, LK=rp00113 | - |
dc.description.nature | link_to_subscribed_fulltext | - |
dc.identifier.doi | 10.1007/s10845-017-1299-1 | - |
dc.identifier.scopus | eid_2-s2.0-85011933866 | - |
dc.identifier.hkuros | 271404 | - |
dc.identifier.volume | 30 | - |
dc.identifier.spage | 2669 | - |
dc.identifier.epage | 2680 | - |
dc.identifier.eissn | 1572-8145 | - |
dc.identifier.isi | WOS:000487969600008 | - |
dc.identifier.issnl | 0956-5515 | - |