Home > Research > Publications & Outputs > Option theory and modeling under uncertainty
View graph of relations

Option theory and modeling under uncertainty

Research output: Contribution to Journal/MagazineJournal articlepeer-review

<mark>Journal publication date</mark>08/1998
<mark>Journal</mark>Annals of Operations Research
Issue number1
Number of pages24
Pages (from-to)59-82
Publication StatusPublished
<mark>Original language</mark>English


Within the framework of some simple models, we explain how option theory can enhancethe understanding and teaching of modeling under uncertainty. We discuss some commonpitfalls in modeling and argue that these result from a failure to come to grips with optionsand flexibility. We examine a dynamic programming approach to evaluating options and avaluation by arbitrage approach and end by comparing the two approaches with respect tohow they treat time and risk.