Work

Investment in technological innovations: An option pricing approach

Year: 1997

Type: article

Abstract: This paper develops a model of the optimal investment strategy for a firm confronted with a sequence of technological innovations. We incorporate many of the most important characteristics of real-world technology markets. For example, we permit innovations to be stochastic in their arrival times and their profitability. We also incorporate learning so that firms adopting current innovations become better able to benefit from future innovations. The model yields four distinct investment strategies. The model is then used to predict actual firm policy. These implications are discussed and compared with observed firm behavior.

Source: Journal of Financial Economics

DOI: 10.1016/s0304-405x(97)00009-3

Authors: Steven R. Grenadier, Allen M. Weiss

Institutions: Stanford University, University of Southern California

Language: English

Topic: Capital Investment and Risk Analysis

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Industry, innovation and infrastructure

Open Access status: hybrid

Estimated APC paid: $4,740