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Real options for an entrepreneur with preferences for liquidity

Author

Listed:
  • Luo, Pengfei
  • Lu, Ting
  • Song, DanDan

Abstract

This paper extends the classical real options model by taking into consideration the preferences for liquidity under incomplete market, and aims to examine the implications of liquidity preferences on the optimal investment timing and option value. The results show that preferences for liquidity have two opposite effects on optimal investment strategies, and significantly erode the option value.

Suggested Citation

  • Luo, Pengfei & Lu, Ting & Song, DanDan, 2021. "Real options for an entrepreneur with preferences for liquidity," Economics Letters, Elsevier, vol. 204(C).
    • Handle: RePEc:eee:ecolet:v:204:y:2021:i:c:s016517652100166x
    DOI: 10.1016/j.econlet.2021.109889
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    References listed on IDEAS

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    More about this item

    Keywords

    Real options; Preferences for liquidity; Incomplete market;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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