Optimal Timing of Relocation. José Azevedo-Pereira Department of Management, and CIEF, ISEG, Portugal [email protected] Gualter Couto Department of Economics and Management, and CEEAplA, Universidade dos Açores, Portugal [email protected] Cláudia Nunes
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Optimal Timing of Relocation
José Azevedo-Pereira
Department of Management, and CIEF, ISEG, Portugal
Gualter Couto
Department of Economics and Management, and CEEAplA, Universidade dos Açores, Portugal
Cláudia Nunes
Mathematics Department, and CEMAT, IST, Portugal
IST, UTL, Lisboa, 26 de Outubro de 2007
(Termination payoff)
with:
with:
Comparative statics illustrations
Figure 1: Behaviour of q* for the truncated-exponential distribution.
Figure 2: Behaviour of q* for the gamma distribution.
The optimal policy seems robust in terms of the particular distribution used, as values of * are nearly the same for both distributions.
Comparative statics illustrations
Figure 3:Behaviour of q* for the truncated-exponential distribution and
for the gamma distribution as a function of the input price.
Higher levels of input related costs lead naturally to increases in the value of the option to delay an investment. Therefore, increases in input prices lead to increases in optimal switching levels.
Comparative statics illustrations
Figure 4:Behaviour of q* for the truncated-exponential and gamma distributions
as a function of the investment cost.
Higher levels of investment costs lead naturally to increases in the value of the option to delay an investment. Therefore, increases in investment costs lead to increases in optimal switching levels.
Comparative statics illustrations
Figure 5: Behaviour of q* for the truncated-exponential distribution and
for the gamma distribution as a function of the discount rate.
Higher levels of discount rate mean higher time value of money and, consequently, a higher potential loss for postponing the decision to relocate.