A modified finite-lived American exchange option methodology applied to real options valuation

Armada, Manuel José da Rocha; Kryzanowski, Lawrence; Pereira, Paulo Jorge

doi:10.1016/j.gfj.2006.05.006

Cited by 19 publications

(14 citation statements)

References 21 publications

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“…Finally, it is possible to approximate the compound American exchange option (CAEO) using the two moments Richardson extrapolation, applying the Armada et al (2007) formula. Denoting by C the CAEO value, we get:…”

Section: Pricing a Pseudo Compound American Exchange Option (Pcaeo)mentioning

confidence: 99%

“…Therefore, models have tended to treat R&D investment as a sequential compound option and can be valued using the techniques of 'Compound Options', also known as 'Option on Options'. Non-sequential models to value exchange options are in Margrabe (1978), Carr (1988Carr ( , 1995 and Armada et al (2007). The simplest Margrabe (1978) model assumes that development cost and platform development are stochastic, and costs (I T and D) are exchanged for the underlying asset V at the development time T .…”

Section: Introductionmentioning

confidence: 99%

“…I T and D can be spent anytime before T . Analytic approximations for American exchange option models are in Carr (1988Carr ( , 1995 and Armada et al (2007).…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Valuation of R&D Sequential Exchange Options Using Monte Carlo Approach

Cortelezzi

Villani²

2008

Comput Econ

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Section: Pricing a Pseudo Compound American Exchange Option (Pcaeo)mentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Valuation of R&D Sequential Exchange Options Using Monte Carlo Approach

Cortelezzi

Villani²

2008

Comput Econ

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“…So, the investment opportunity corresponds to an exchange option and not to a simple call option: it's the exchange of an uncertain investment cost, for an uncertain gross project value. The most relevant models that value investment opportunities with two stochastic variables are given in Margrabe (1978), McDonald and Siegel (1985), Carr (1988Carr ( , 1995, Armada et al (2007). We can synthesize the main characteristics of these models.…”

mentioning

confidence: 99%

“…Carr (1988) develops a model to value an American exchange option using the Geske and Johnson (1984) approximation for valuing American puts, and he presents also a model to value an European compound exchange option. Finally, Armada et al (2007) correct the Carr's extrapolation formula to value an American exchange option. So, we can use real options methodology, and particulary Exchange options to value an opportunity investment but we have to consider that most projects are open to more than one company in the same line of business.…”

mentioning

confidence: 99%

An R&D Investment Game under Uncertainty in Real Option Analysis

Villani

2008

Comput Econ

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One of the problems of using the financial options methodology to analyse investment decisions is that strategic considerations become extremely important. So, the theory of real option games combines two successful theories, namely real options and game theory. The investment opportunity and the value of flexibility can be valued as a real option while the competition can be analyzed with game theory. In our model we develop an interaction between two firms that invest in R&D. The firm that invests first, defined as the Leader, acquires a first mover advantage that we assume as a higher share of market. But, several R&D investments present positive externalities and so, the option exercise by the Leader generates an “Information Revelation”, that benefits the Follower

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On fair designs of cross‐chain exchange for cryptocurrencies via Monte Carlo simulation

Wang

Jiang

2021

Naval Research Logistics

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Cryptocurrency is one of the earliest and the most successful applications of blockchain, and it utilizes the distributed ledger, which is a commonly used technique in blockchain, to make a decentralized transaction within the blockchain of a cryptocurrency. However, how to make a decentralized transaction of cryptocurrencies between parties on different blockchains, that is, the cross‐chain exchange, is not well‐studied. In this paper, we develop a new method to make cross‐chain exchanges based on the classical atomic swap. We first study the optionality embedded into the atomic swap and propose to add a premium into the atomic swap, and then design a new procedure with the premium to guarantee the fairness of the cross‐chain exchange. We also provide an algorithm based on the least‐squares Monte Carlo method to estimate the premium and analyze the convergence of the algorithm. Moreover, we study the cross‐chain exchange with margin trading. We propose an adapted exchange procedure to make a fair cross‐chain exchange and an algorithm to estimate the fair premium under the margin trading. Numerical experiments are provided to show the effectiveness of the algorithms.

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A modified finite-lived American exchange option methodology applied to real options valuation

Cited by 19 publications

References 21 publications

Valuation of R&D Sequential Exchange Options Using Monte Carlo Approach

Valuation of R&D Sequential Exchange Options Using Monte Carlo Approach

An R&D Investment Game under Uncertainty in Real Option Analysis

On fair designs of cross‐chain exchange for cryptocurrencies via Monte Carlo simulation

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