A Closed-Form Solution for the Exercise Strategy in a Real Options Model with a Jump-Diffusion Process

• Autores: Jin Liang, Ming Yang, Lishang Jiang
• Localización: Siam journal on applied mathematics, ISSN 0036-1399, Vol. 73, Nº 1, 2013, págs. 549-571
• Idioma: inglés
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• Resumen

  • An investment strategy in a real options model with a jump-diffusion process is considered. Using an integro-differential equation approach, the optimal stopping problem is converted to a free boundary problem. An analytical formula for the option value and a closed-form solution for the investment exercise threshold are obtained. Furthermore, both upper and lower bounds of the threshold are derived and an approximation for the threshold is developed. Finally, numerical examples are presented.