We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
THE VALUE OF WAITING TO INVEST.
- Authors
Mcdonald, Robert; Siegel, Daniel
- Abstract
This paper studies the optimal timing of investment in an irreversible project where the benefits from the project and the investment cost follow continuous-time stochastic processes. The optimal investment rule and an explicit formula for the value of the option to invest are derived, assuming that the option is valued by risk-averse investors who are well diversified. The same analysis is applied to the scrapping decision. Simulations show that this option value can be significant, and that for reasonable parameter values it is optimal to wait until benefits are twice the investment costs.
- Subjects
INVESTMENTS; FINANCE; STOCHASTIC processes; INVESTORS; OPTION value; ECONOMICS
- Publication
Quarterly Journal of Economics, 1986, Vol 101, Issue 4, p707
- ISSN
0033-5533
- Publication type
Article
- DOI
10.2307/1884175