Optimal investment under operational flexibility, risk aversion, and uncertainty

• Main Authors: CHRONOPOULOS, Michail, DE REYCK, Bert, SIDDIQUI, Afzal
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2011
• Subjects: Decision analysis; Investment under uncertainty; Real options; Operational flexibility; Risk aversion; Operations and Supply Chain Management; Risk Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6755; https://ink.library.smu.edu.sg/context/lkcsb_research/article/7750/viewcontent/Optimal_investment_under_operational_flexibility_risk_aversion_av.pdf
• Institution: Singapore Management University

Traditional real options analysis addresses the problem of investment under uncertainty assuming a risk-neutral decision maker and complete markets. In reality, however, decision makers are often risk averse and markets are incomplete. We confirm that risk aversion lowers the probability of investme...