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TitleOptimal investment with two-factor uncertainty
Author(s)Armada, Manuel José da Rocha
Pereira, Paulo Jorge
Rodrigues, Artur
KeywordsMultiple stochastic factors
Real options
Issue dateSep-2013
JournalMathematics and financial economics
Abstract(s)This paper presents a real options model to value the option to invest in a project contingent on two stochastic factors. A general sensitivity analysis is conducted highlighting the importance of the variance and correlation between the two variables. A higher correlation is shown to increase always the values of the trigger, the active project and the option. The impact of uncertainty is more complex and depends on the assumption about which variables adjust and the correlation between the variables and the market.
Publisher version
AccessRestricted access (UMinho)
Appears in Collections:NIPE - Artigos em Revistas de Circulação Internacional com Arbitragem Científica

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