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  • Ejor2010

    Rights statement: “NOTICE: this is the author’s version of a work that was accepted for publication in the European Journal of Operational Research. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in European Journal of Operational Research, [202, 1, (2010)] DOI:10.1016/j.ejor.2009.05.027”

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Uncertainty and stepwise investment

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Uncertainty and stepwise investment. / Kort, Peter M; Murto, Pauli; Pawlina, Grzegorz.

In: European Journal of Operational Research, Vol. 202, No. 1, 01.04.2010, p. 196-203.

Research output: Contribution to journalJournal article

Harvard

Kort, PM, Murto, P & Pawlina, G 2010, 'Uncertainty and stepwise investment', European Journal of Operational Research, vol. 202, no. 1, pp. 196-203. https://doi.org/10.1016/j.ejor.2009.05.027

APA

Kort, P. M., Murto, P., & Pawlina, G. (2010). Uncertainty and stepwise investment. European Journal of Operational Research, 202(1), 196-203. https://doi.org/10.1016/j.ejor.2009.05.027

Vancouver

Kort PM, Murto P, Pawlina G. Uncertainty and stepwise investment. European Journal of Operational Research. 2010 Apr 1;202(1):196-203. https://doi.org/10.1016/j.ejor.2009.05.027

Author

Kort, Peter M ; Murto, Pauli ; Pawlina, Grzegorz. / Uncertainty and stepwise investment. In: European Journal of Operational Research. 2010 ; Vol. 202, No. 1. pp. 196-203.

Bibtex

@article{4180caf7e2ee4f9c9689954516356e50,
title = "Uncertainty and stepwise investment",
abstract = "We analyze the optimal investment strategy of a firm that can complete a project either in one stage at a single freely chosen time point or in incremental steps at distinct time points. The presence of economies of scale gives rise to the following trade-off: lumpy investment has a lower total cost, but stepwise investment gives more flexibility by letting the firm choose the timing individually for each stage. Our main question is how uncertainty in market development affects this trade-off. The answer is unambiguous and in contrast with a conventional real-options intuition: higher uncertainty makes the single-stage investment more attractive relative to the more flexible stepwise investment strategy.",
keywords = "Investment analysis, Real options, Capital budgeting, Project flexibility, Dynamic programming",
author = "Kort, {Peter M} and Pauli Murto and Grzegorz Pawlina",
note = "“NOTICE: this is the author’s version of a work that was accepted for publication in the European Journal of Operational Research. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in European Journal of Operational Research, [202, 1, (2010)] DOI:10.1016/j.ejor.2009.05.027”",
year = "2010",
month = "4",
day = "1",
doi = "10.1016/j.ejor.2009.05.027",
language = "English",
volume = "202",
pages = "196--203",
journal = "European Journal of Operational Research",
issn = "0377-2217",
publisher = "Elsevier Science B.V.",
number = "1",

}

RIS

TY - JOUR

T1 - Uncertainty and stepwise investment

AU - Kort, Peter M

AU - Murto, Pauli

AU - Pawlina, Grzegorz

N1 - “NOTICE: this is the author’s version of a work that was accepted for publication in the European Journal of Operational Research. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in European Journal of Operational Research, [202, 1, (2010)] DOI:10.1016/j.ejor.2009.05.027”

PY - 2010/4/1

Y1 - 2010/4/1

N2 - We analyze the optimal investment strategy of a firm that can complete a project either in one stage at a single freely chosen time point or in incremental steps at distinct time points. The presence of economies of scale gives rise to the following trade-off: lumpy investment has a lower total cost, but stepwise investment gives more flexibility by letting the firm choose the timing individually for each stage. Our main question is how uncertainty in market development affects this trade-off. The answer is unambiguous and in contrast with a conventional real-options intuition: higher uncertainty makes the single-stage investment more attractive relative to the more flexible stepwise investment strategy.

AB - We analyze the optimal investment strategy of a firm that can complete a project either in one stage at a single freely chosen time point or in incremental steps at distinct time points. The presence of economies of scale gives rise to the following trade-off: lumpy investment has a lower total cost, but stepwise investment gives more flexibility by letting the firm choose the timing individually for each stage. Our main question is how uncertainty in market development affects this trade-off. The answer is unambiguous and in contrast with a conventional real-options intuition: higher uncertainty makes the single-stage investment more attractive relative to the more flexible stepwise investment strategy.

KW - Investment analysis

KW - Real options

KW - Capital budgeting

KW - Project flexibility

KW - Dynamic programming

U2 - 10.1016/j.ejor.2009.05.027

DO - 10.1016/j.ejor.2009.05.027

M3 - Journal article

VL - 202

SP - 196

EP - 203

JO - European Journal of Operational Research

JF - European Journal of Operational Research

SN - 0377-2217

IS - 1

ER -