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A framework for modelling cash flow lags

Author

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  • Armerin, Fredrik

    (Department of Real Estate and Construction Management, Royal Institute of Technology)

  • Song, Han-Suck

    (Department of Real Estate and Construction Management, Royal Institute of Technology)

Abstract

Many irreversible investment problems studied in finance has the property that the cash flow representing the cost and the revenue of the investment occur at one time (either at the same time, or at two different times). In this note we present a framework in which the cash flows are allowed to be spread out in time, thus yielding a more realistic model. We show the effect of this extension in an investment case study example.

Suggested Citation

  • Armerin, Fredrik & Song, Han-Suck, 2020. "A framework for modelling cash flow lags," Working Paper Series 20/17, Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance.
    • Handle: RePEc:hhs:kthrec:2020_017
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    References listed on IDEAS

    as
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    5. Sarkar, Sudipto & Zhang, Chuanqian, 2015. "Investment policy with time-to-build," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 142-156.
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    More about this item

    Keywords

    Optimal Stopping; Irreversible Investments; Cash Flow Lags; Time-to-build;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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