REAL OPTIONS WITH PRICED REGIME-SWITCHING RISK

@inproceedings{Driffill2013REALOW,
  title={REAL OPTIONS WITH PRICED REGIME-SWITCHING RISK},
  author={John Driffill and Turalay Kenç and Mart{\'i}n Sol{\'a}},
  year={2013}
}
  • John Driffill, Turalay Kenç, Martín Solá
  • Published 2013
  • Economics
  • We develop a model of regime-switching risk premia as well as regime-dependent factor risk premia to price real options. The model incorporates the observation that the underlying risky income streams of real options are subject to discrete shifts over time as well as random changes. The presence of discrete shifts is due to systematic and unsystematic risk associated with changes in business cycles or in economic policy regimes or events such as takeovers, major changes in business plans. We… CONTINUE READING

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