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Title: Essays on real options and strategic investment
Author: Hsu, Y.
Awarding Body: University of Cambridge
Current Institution: University of Cambridge
Date of Award: 2001
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This dissertation comprises three essays on strategic real options. We use contingent claims analysis (CCA) to study how the timing of an investment under uncertainty is affected by strategic behaviour. 'Preemptive Patenting under Uncertainty and Asymmetric Information' examines an option game in which a potential entrant competes with the incumbent to introduce a new product. We assume each agent wants to preempt the rival whenever it is advantageous to do so. Information asymmetry exists between the firms in the sense that the incumbent knows only the probability distribution of the challenger's cost, while the incumbent's cost is publicly known. Therefore, by waiting, the incumbent retains the flexibility to respond to new information, but the fear of preemption may drive him to invest earlier. We analyse how the incumbent determines its strategic investment trigger based on this trade-off. 'Duopolistic Investment Decisions under Uncertainty' combines the option values of different firms' investment opportunities to find the equilibrium investment behaviour. We first analyse a monopolist's investment decision, assuming that the firm must incur some cost to keep its investment opportunity alive. The claim value of the investment opportunity is found by solving a two-free-boundaries problem numerically. The solution also includes an inaction region in which the monopolist keeps waiting until investment or abandonment is triggered. We then generalise the CCA in a duopolistic context. The claim values of both firms' investment opportunities are solved simultaneously, and the strategic inaction region, showing who will invest or abandon first, is also analysed. 'Staging of Venture Capital Investment: A Real Options Analysis' combines CCA with principal-agent analysis to investigate the staging decision of the venture capitalist. We assume that the venture capitalist can finance a venture's operation by staged or lump-sum investment. The staged and lump-sum financing opportunities are modelled as compound and simple options respectively.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available