Real Options and Contingent Convertibles with Regime Switching

2016 ◽  
Author(s):  
Pengfei Luo ◽  
Zhaojun Yang
Keyword(s):  
Real Options ◽  
Regime Switching ◽  
Contingent Convertibles

Threshold-Type Policies for Real Options Using Regime-Switching Models

2012 ◽  
Vol 3 (1) ◽  
pp. 667-689 ◽  
Author(s):  
Alain Bensoussan ◽  
ZhongFeng Yan ◽  
G. Yin
Keyword(s):  
Real Options ◽  
Regime Switching ◽  
Regime Switching Models ◽  
Switching Models

REAL OPTIONS WITH COMPETITION AND REGIME SWITCHING

2014 ◽  
Vol 27 (1) ◽  
pp. 224-250 ◽  
Author(s):  
Alain Bensoussan ◽  
SingRu Hoe ◽  
ZhongFeng Yan ◽  
George Yin
Keyword(s):  
Real Options ◽  
Regime Switching

scholarly journals REAL OPTIONS WITH PRICED REGIME-SWITCHING RISK

2013 ◽  
Vol 16 (05) ◽  
pp. 1350028 ◽  
Author(s):  
JOHN DRIFFILL ◽  
TURALAY KENC ◽  
MARTIN SOLA
Keyword(s):  
Real Options ◽  
Regime Switching ◽  
Regime Shift ◽  
Risk Premia ◽  
Switching Behavior ◽  
Specific Factor ◽  
Policy Regimes ◽  
Business Plans ◽  
Investment Opportunities ◽  
The Impact

We develop a model of regime-switching risk premia as well as regime-dependent factor risk premia to price real options. The model incorporates the observation that the underlying risky income streams of real options are subject to discrete shifts over time as well as random changes. The presence of discrete shifts is due to systematic and unsystematic risk associated with changes in business cycles or in economic policy regimes or events such as takeovers, major changes in business plans. We analyze the impact of regime-switching behavior on the valuation of projects and investment opportunities. We find that accounting for Markov switching risk results in a delay in the expected timing of the investment while the regime-specific factor risk premia make the possibility of a regime shift more pronounced.

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