Download This PaperBuridan's Ass and a Menu of Options
23 Pages Posted: 5 Feb 2005
Date Written: January 31, 2005
Abstract
The goal of the paper is to study how a menu of options affects decisions of a rational agent facing uncertainty over future payoff streams. Using the real options approach, we demonstrate that multiple options not only increase the barrier which the underlying stochastic variable has to reach in order investment became optimal, but cause the investor to be inactive even when the cost of investment is vanishing. As a technical contribution, the paper suggests a robust method of solution of a two-point optimal stopping problem.
Keywords: Real options, menu of options
JEL Classification: D81, C61, G31
Suggested Citation: Suggested Citation
Boyarchenko, Svetlana I., Buridan's Ass and a Menu of Options (January 31, 2005). Available at SSRN: https://ssrn.com/abstract=657201 or http://dx.doi.org/10.2139/ssrn.657201
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