A Comparative Statics Analysis of a Two-Dimensional Real Options Model

Jing-Hui Dong, Yoshio Iihara
2015 Journal of Real Options and Strategy  
We carry out a comparative statics analysis for a two-dimensional real option model under two correlated geometric Brownian motions, especially focus on the expected waiting time to invest. We find that the volatilities in the two-dimensional model have more complex effects than they have in the one-dimensional model. Although an increase in the threshold which caused by a change in value of a parameter leads to longer expected waiting time in the one-dimensional model, it is not always the
more » ... not always the case for the two-dimensional model. This result suggests that a two-dimensional real options model is not only more realistic but also more useful in making acceptable investment plans.
doi:10.12949/realopn.7.1 fatcat:sdhbkodhbrblrpub6zdslenjlu