The Expected Return and Exercise Time of Merton-style Real Options
Tools
Tools
Tools
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.Abstract
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 : |
|
|||||||||
| 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 | |||||||||
| URI: | http://epubs.surrey.ac.uk/id/eprint/818692 |
Actions (login required)
 |
View Item |
Downloads
Downloads per month over past year