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Modeling, Dynamics, Optimization and Bioeconomics I pp 673–693Cite as

Financial, Real, and Quasi Options: Similarities and Differences

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Part of the book series: Springer Proceedings in Mathematics & Statistics ((PROMS,volume 73))

Abstract

Flexibility, uncertainty, and irreversibility provide gains from waiting. These gains have been elaborated in the context of finance (financial option), investment (real option), and environmental policy (quasi option). While the financial and real option values are closely linked as the real option value theory has been developed from the financial option value theory the quasi option value originated from environmental economics and the link with financial and real option value theory is less obvious. A comparison between the three option theories shows similarities as well as differences. Knowing in particular the cause of differences will be important for understanding why either of the approach may yield a different result, for the interpretation of the results, and for the choice of approach.

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Notes

  1. 1.

    The Wiener process is a Markov process with a normal distributed variance that increases linear in time.

  2. 2.

    This not necessarily applies to dividend paying financial instruments.

  3. 3.

    Note, the opportunity costs in this example are considered to be zero.

  4. 4.

    Please not in this case V p u = 3, 000 and V p d = 1, 000.

  5. 5.

    Modified corn that produces the δ-endotoxins of the soil bacterium Bacillus thuringiens which control the European Corn Boxer.

  6. 6.

    See also [31] for similar results.

  7. 7.

    See, e.g., Sect. 22 [15] for an introduction of Itô-stochastic processes.

  8. 8.

    The value matching condition sustains that the value of the option to release the transgenic crop is equivalent to the value of immediate release. The smooth pasting condition says that at the point of value matching a marginal change in the value of the option to release the transgenic crop has to be equal to a marginal change in the value of immediate release [11, pp. 130–132].

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Authors and Affiliations

  1. Technische Universität München, München, Germany

    Justus Wesseler

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  1. Justus Wesseler
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Correspondence to Justus Wesseler .

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Editors and Affiliations

  1. University of Porto, Department of Mathematics, Porto, Portugal

    Alberto Adrego Pinto

  2. Univ. of California, Dept. of Agricultural and Resource Economics, Berkeley, California, USA

    David Zilberman

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Wesseler, J. (2014). Financial, Real, and Quasi Options: Similarities and Differences. In: Pinto, A., Zilberman, D. (eds) Modeling, Dynamics, Optimization and Bioeconomics I. Springer Proceedings in Mathematics & Statistics, vol 73. Springer, Cham. https://doi.org/10.1007/978-3-319-04849-9_39

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