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Timing Decisions in a Multinational Context: Implementing the Amin/Bodurtha Framework

Author

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  • Manfred Fruhwirth

    (Vienna University of Economics and Business Administration, Austria)

  • Paul Schneider

    (Vienna University of Economics and Business Administration, Austria)

  • Markus S. Schwaiger

    (Austrian Central Bank and Vienna University of Economics and Business Administration, Austria)

Abstract

The Amin/Bodurtha framework was developed for the valuation of American-style financial instruments driven by three sources of uncertainty— domestic interest rate risk, foreign interest rate risk and exchange rate risk. The model is not only appropriate for pricing a number of financial derivatives, but also, as we show, for valuing foreign investment projects in the presence of real options. In this paper we propose the most natural directly implementable specification within the Amin/Bodurtha framework that permits all combinations of up and down moves of these three risk factors without restricting volatility functions of the factors or correlations between them. By use of the depth-first algorithm, we can show that this specification is implementable at reasonable computation times

Suggested Citation

  • Manfred Fruhwirth & Paul Schneider & Markus S. Schwaiger, 2007. "Timing Decisions in a Multinational Context: Implementing the Amin/Bodurtha Framework," Multinational Finance Journal, Multinational Finance Journal, vol. 11(3-4), pages 157-178, September.
    • Handle: RePEc:mfj:journl:v:11:y:2007:i:3-4:p:157-178
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    References listed on IDEAS

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    2. Vishaal Baulkaran & Nathaniel C. Lupton, 2020. "U.S. FDI and Shareholder Rights Protection in Developed and Developing Economies," Multinational Finance Journal, Multinational Finance Journal, vol. 24(3-4), pages 155-182, September.

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    More about this item

    Keywords

    American-style derivatives; multinational timing decisions; depth-first algorithm;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • F30 - International Economics - - International Finance - - - General

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