University of Surrey

Test tubes in the lab Research in the ATI Dance Research

The Expected Return and Exercise Time of Merton-style Real Options

Shackleton, M and Wojakowski, R (2002) The Expected Return and Exercise Time of Merton-style Real Options Journal of Business Finance & Accounting, 29 (3&4). pp. 541-555.

Full text not available from this repository.


We analyse the rate of return and expected exercise time of Merton-style options (1973) employed in many real option situations where the possibility of exercise is both perpetual and American in nature. Using risk-neutral and risk-adjusted pricing techniques, Merton-style options are shown to have an expected return that is a "constant percentage" of the option value and independent of the proximity to the critical exercise boundary. Merton options thus remain at the same point on the Security Market Line, unlike European options whose position and rate of return change dynamically. We also present formulae for the expected time and discounted times to exercise and analyse the dependency of these variables on volatility.

Item Type: Article
Divisions : Surrey research (other units)
Authors :
Shackleton, M
Date : April 2002
DOI : 10.1111/1468-5957.00442
Depositing User : Symplectic Elements
Date Deposited : 16 May 2017 15:18
Last Modified : 24 Jan 2020 14:20

Actions (login required)

View Item View Item


Downloads per month over past year

Information about this web site

© The University of Surrey, Guildford, Surrey, GU2 7XH, United Kingdom.
+44 (0)1483 300800