Title: On the Investment-Uncertainty Relationship in a Real Option Model with Stochastic Volatility
Abstract: We consider the classical investment timing problem in a framework where the instantaneous volatility of the project value is itself given by a stochastic process, hence lifting the old question about the investment-uncertainty relationship to a new level. Motivated by the classical cases of Geometric Brownian Motion (GBM) and Geometric Mean Reversion (GMR), we consider processes of similar functional form, but with Heston stochastic volatility replacing the constant volatility in the classical models. We refer to these processes as Heston-GBM and Heston-GMR.
Publication Year: 2011
Publication Date: 2011-01-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 2
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