A Comment on 'an Arbitrage-Free Approach to Quasi-Option Value' by Coggins and Ramezani

Abstract

In their article 'An Arbitrage-Free Approach to Quasi-Option Value' [J. Environm. Econom. Management 35, 103-125, 1998], Coggins and Ramezani interpreted the concept of quasi-option value - introduced by Arrow and Fisher [Quart. J. Econom. 88, 1974, 312-319] - as being identical to Dixit and Pindyck's real option value. This means their approach differs from the approach by Fisher and Hanemann [J. Environm. Econom. Management 14, 183-190, 1987] who formalized the concept of quasi-option value a decade before. By indirectly characterizing Dixit and Pindyck's real option value Coggins and Ramezani confirmed classic results in the field of real options theory.

Keywords: Quasi option value, real option value, irreversible investment, decision making under uncertainty

JEL Classification: D81, D92, Q20