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Strategic Investments, Trading, and Pricing Under Forecast Updating

Jiri Chod, Nils Rudi
2006 Management science  
Assuming a fairly general form of the profit functions, we characterize the Nash equilibrium investment levels, which are first-best under the price equilibrium trade contract, but not under the bargaining  ...  Assuming a general forecast evolution process, we characterize the impact of the option to trade and the firms' cooperation on equilibrium investments, expected prices, profits, and consumer surplus.  ...  Without the option to trade, the optimal investment levels are q 0 i = Ɛ i 1 − a c 1/a i = 1 2 (15) With the option to trade, the vector of system-optimal investment levels q * is characterized by the  ... 
doi:10.1287/mnsc.1060.0574 fatcat:5xdz6vcbcrhe3jmbu2u73b4dju

Strategic Investments, Trading and Pricing Under Forecast Updating

Jiri Chod, Nils Rudi
2003 Social Science Research Network  
Assuming a fairly general form of the profit functions, we characterize the Nash equilibrium investment levels, which are first-best under the price equilibrium trade contract, but not under the bargaining  ...  Assuming a general forecast evolution process, we characterize the impact of the option to trade and the firms' cooperation on equilibrium investments, expected prices, profits, and consumer surplus.  ...  Without the option to trade, the optimal investment levels are q 0 i = Ɛ i 1 − a c 1/a i = 1 2 (15) With the option to trade, the vector of system-optimal investment levels q * is characterized by the  ... 
doi:10.2139/ssrn.467362 fatcat:xflbyrng2fdw3d23azuebgjtqi

Real-Options-Based Planning Strategies under Uncertainty

Anshuman Gupta, Costas D. Maranas
2004 Industrial & Engineering Chemistry Research  
In this work, a real-options-based valuation (ROV) framework for hedging under uncertainty is developed.  ...  Three application areas of the ROV methodology are described: production planning, pharmaceutical pipeline management, and emission trading.  ...  Subsequently, in light of the arbitrage-free pricing principle, the risk-neutral pricing approach under uncertainty was uncovered.  ... 
doi:10.1021/ie034164a fatcat:tnlfhj3jrbeanksrts7rhgzfke

Real Options Based Analysis of Optimal Pharmaceutical Research and Development Portfolios

Michael J. Rogers, Anshuman Gupta, Costas D. Maranas
2002 Industrial & Engineering Chemistry Research  
Consequently, the value of the abandonment option increases with rising market uncertainty or decreased probability of clinical trial success.  ...  The resulting mixed-integer linear programming formulation is applied to a case study involving the selection of the optimal product portfolio from a set of 20 candidate drugs at different stages in the  ...  In general, candidate products with high probabilities of technical success and a high current value to future investment ratios are preferable.  ... 
doi:10.1021/ie020385p fatcat:3ebfumt5wfanvc4narg67excyq

Investment Decisions of Fired Power Plants on Carbon Utilization under the Imperfect Carbon Emission Trading Schemes in China

Weiwei Zhang, Linlin Liu
2019 Processes  
This paper proposes a real option model to analyze the investment decisions of a coal-fired power plant on CCUS technologies under imperfect carbon emission trading schemes in China.  ...  Considering multiple uncertainties, which include carbon trading price volatility, carbon utilization revenue fluctuation, and changes in carbon transport and storage cost, the least squares Monte Carlo  ...  Conflicts of Interest: The authors declare no conflicts of interest. Processes 2019, 7, 828  ... 
doi:10.3390/pr7110828 fatcat:4gtm4mqsh5eazjoxcy52dpmyw4

Optimal R&D Investment for a Risk-Averse Entrepreneur

A. Elizabeth Whalley
2009 Social Science Research Network  
The technical uncertainty associated with the cost to completion of an R&D project, whilst idiosyncratic, is also inherently unhedgeable.  ...  We extend existing real options models of R&D investment to incorporate the cost of bearing this unhedgeable risk and find it decreases risk-averse entrepreneurs' valuations of R&D projects and increases  ...  Moreover, option values under both price and technical uncertainty increase with the level of uncertainty, so the magnitude of the conventional NPVs at the thresholds also increase with uncertainty in  ... 
doi:10.2139/ssrn.1340673 fatcat:dvbevkrja5eudlxavprfbrtd7q

Optimal R&D investment for a risk-averse entrepreneur

A. Elizabeth Whalley
2011 Journal of Economic Dynamics and Control  
The technical uncertainty associated with the cost to completion of an R&D project, whilst idiosyncratic, is also inherently unhedgeable.  ...  We extend existing real options models of R&D investment to incorporate the cost of bearing this unhedgeable risk and find it decreases risk-averse entrepreneurs' valuations of R&D projects and increases  ...  Moreover, option values under both price and technical uncertainty increase with the level of uncertainty, so the magnitude of the conventional NPVs at the thresholds also increase with uncertainty in  ... 
doi:10.1016/j.jedc.2009.11.009 fatcat:hyfln7374jearh7p22qnkfl2au

Decision and Performance Analysis of a Price-Setting Manufacturer with Options under a Flexible-Cap Emission Trading Scheme (ETS)

Shuyi Wang, Zhenhua Wu, Baochen Yang
2018 Sustainability  
This paper investigates the effectiveness of the option contract on manufacture optimality in the flexible-cap ETS system, in which the joint emission ordering and production pricing problem under demand  ...  Newsvendor models are built to investigate the behaviours and performances of manufacturers, with a call option contract when the price-driven demand is uncertain.  ...  [12] employed a game theory Cournot model to analytically examine the profitable effect of fixed cap-and-trade regulation in the context of two firms with undesirable emissions. Xu, et al.  ... 
doi:10.3390/su10103681 fatcat:d5yzlji6ufdzdclcgscrhlp7fy

Management Insights

2009 Production and operations management  
We consider a make-to-order manufacturer serving two types of customers: core customers who pay a fixed negotiated price, and "fill-in" customers who vii PRODUCTION AND OPERATIONS MANAGEMENT  ...  general dynamic pricing.  ...  A simulation optimization approach is used to deter-mine optimal scheduling rules for an outpatient health care system facing uncertainty in terms of client arrival times, physician service times, and  ... 
doi:10.1111/j.1937-5956.2009.01062.x fatcat:ri4dtpsztva4zbf3ci5knuegpe

Timing Product Replacements under Uncertainty-The Importance of Material-Price Fluctuations for the Success of Products That Are Based on New Materials

Jan Hendrik Fisch, Jan-Michael Ross
2014 The Journal of product innovation management  
Real-option theory suggests delaying material substitution under uncertainty even if the new material enables superior product performance.  ...  However, when the input costs of products that embody new materials are uncertain due to volatile material prices, the advantage of being an early mover comes along with the risk of paying unexpectedly  ...  Recent work shows that firms benefit from real-options reasoning in relation to options that are generally created to respond to variations in prices or demand with the goal of selling more profitable  ... 
doi:10.1111/jpim.12145 fatcat:4iaacvawqfeazgpi2hyjyyewca

Optimal resource extraction under stochastic terms of trade

Axel Behrens
1990 Resources and Energy  
down the rate of production under uncertainty.  ...  Second, the ability of this country to withhold production in times when it's not profitable to deplete the resource (due to stochastic fluctuations of the terms of trade), provides an incentive to slow  ...  In section 3 we describe the optimal resource extraction under uncertainty.  ... 
doi:10.1016/0165-0572(90)90001-y fatcat:uegqf5rwvjcebcp75zvxez7bfm

Enterprise-wide modeling & optimization—An overview of emerging research challenges and opportunities

V.A. Varma, G.V. Reklaitis, G.E. Blau, J.F. Pekny
2007 Computers and Chemical Engineering  
These themes have included upstream R&D pipeline management, planning and scheduling in batch and continuous manufacturing systems and more recently supply chain optimization under uncertainty.  ...  In reality, the modern process enterprise functions as a cohesive entity involving several degrees of cross-functional co-ordination across enterprise planning and process functions.  ...  Finally, Barbaro and Bagajewicz (2004) have considered options in managing risk in production planning under uncertainty.  ... 
doi:10.1016/j.compchemeng.2006.11.007 fatcat:wt6253ffgze5jilwoqsf3dkgcq

Risk management for fisheries

Suresh A Sethi
2010 Fish and Fisheries  
I thank Ray Hilborn, Trevor Branch and two anonymous referees for helpful comments that improved this article.  ...  Sumaila from the Pew-funded Sea Around Us Project at the University of British Columbia.  ...  They can be used to manage price risk in two ways.  ... 
doi:10.1111/j.1467-2979.2010.00363.x fatcat:whadfcy4wrf67ivxmokvd6iagi

Optimal investment timing and capacity choice for pumped hydropower storage

Emily Fertig, Ane Marte Heggedal, Gerard Doorman, Jay Apt
2013 Energy Systems, Springer Verlag  
Results show that the optimal investment strategy under the base scenario is to invest in the largest available plant approximately eight years into the option lifetime.  ...  Price forecasts given increased wind capacity are used to calculate profit-maximizing production schedules and annual revenue streams.  ...  Acknowledgments The authors thank Bjørn Bakken, Michael Belsnes, and Atle Harby of SINTEF Energy Research; Stein-Erik  ... 
doi:10.1007/s12667-013-0109-x fatcat:nc4mmicmkjeztm53ogno6p76j4

A REAL OPTIONS PERSPECTIVE ON SUPPLY CHAIN MANAGEMENT IN HIGH TECHNOLOGY1

Corey Billington, Blake Johnson, Alex Triantis
2002 Journal of Applied Corporate Finance  
Simulation, optimization, and methods of determining optimal option exercise can be used to analyze the performance of the various portfolios under a wide range of scenarios.  ...  have met with success.  ... 
doi:10.1111/j.1745-6622.2002.tb00693.x fatcat:u6xghzq72jaofjyve644cafnru
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