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The Value Of Fighting Irreversible Demise By Softening The Irreversible Cost

Author

Listed:
  • PAUL MAGIS

    (Department of Econometrics, Tilburg University, P. O. Box 90153, 5000 LE, Tilburg, The Netherlands)

  • ALESSANDRO SBUELZ

    (Department of Economics, SAFE Center, University of Verona, Via Giardino Giusti 2, 37129, Verona, Italy)

Abstract

We study a novel issue in the real-options-based technology innovation literature by means of double barrier contingent claims analysis. We show how much a firm with the monopoly over a project is willing to spend in investment technology innovation that softens the irreversible cost of accessing the project before its irreversible demise. The answer depends on the project's characteristics and on the effectiveness demanded from technology innovation.

Suggested Citation

  • Paul Magis & Alessandro Sbuelz, 2006. "The Value Of Fighting Irreversible Demise By Softening The Irreversible Cost," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 9(04), pages 503-516.
    • Handle: RePEc:wsi:ijtafx:v:09:y:2006:i:04:n:s021902490600372x
    DOI: 10.1142/S021902490600372X
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    References listed on IDEAS

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    1. Minh Ha-Duong & Benoit Morel, 2003. "The real option with an absorbing barrier," Post-Print halshs-00003976, HAL.
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    1. Magis, P. & Sbuelz, A., 2005. "The Value of Fighting Irreversible Demise by Softening the Irreversible Cost," Discussion Paper 2005-26, Tilburg University, Center for Economic Research.
    2. Magis, P. & Sbuelz, A., 2005. "The Value of Fighting Irreversible Demise by Softening the Irreversible Cost," Other publications TiSEM d1ee4831-05b4-4d1f-a02e-6, Tilburg University, School of Economics and Management.

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