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General trigger values of optimal investment

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  • Jurgen Vandenbroucke

Abstract

We consider a general real option model which allows finite values for all parameters influencing the value of waiting in case of uncertain and irreversible investment. We show that the traditional net present value rule and the commonly known Dixit-Pindyck approach are nested in the same general real option model and hence produce optimal investment decisions only in their specific scenario.

Suggested Citation

  • Jurgen Vandenbroucke, 1999. "General trigger values of optimal investment," Applied Economics Letters, Taylor & Francis Journals, vol. 6(5), pages 287-290.
    • Handle: RePEc:taf:apeclt:v:6:y:1999:i:5:p:287-290
    DOI: 10.1080/135048599353249
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    References listed on IDEAS

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    1. Andrew B. Abel & Avinash K. Dixit & Janice C. Eberly & Robert S. Pindyck, 1996. "Options, the Value of Capital, and Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(3), pages 753-777.
    2. Avinash Dixit & Robert S. Pindyck & Sigbjorn Sodal, 1997. "A Markup Interpretation of Optimal Rules for Irreversible Investment," NBER Working Papers 5971, National Bureau of Economic Research, Inc.
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    5. Mauer, David C & Triantis, Alexander J, 1994. "Interactions of Corporate Financing and Investment Decisions: A Dynamic Framework," Journal of Finance, American Finance Association, vol. 49(4), pages 1253-1277, September.
    6. Barone-Adesi, Giovanni & Whaley, Robert E, 1987. "Efficient Analytic Approximation of American Option Values," Journal of Finance, American Finance Association, vol. 42(2), pages 301-320, June.
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