Valuing an investment project using no-arbitrage and the alpha-maxmin criteria: From Knightian uncertainty to risk - Archive ouverte HAL Access content directly
Journal Articles Economics Letters Year : 2019

Valuing an investment project using no-arbitrage and the alpha-maxmin criteria: From Knightian uncertainty to risk

Abstract

We consider a two-period irreversible investment decision problem in which the firm can either invest in period 0 or in period 1. The firm is assumed to be able to specify a set of three scenarios or more but not a probability measure. Assuming the option to wait is valued with the no-arbitrage principle, when the firm makes use of the criteria α-maxmin, we show the firm ends up with a known probability measure that assigns a positive probability to three or four scenarios only.
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hal-02504260 , version 1 (22-10-2021)

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Attribution - NonCommercial

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Yann Braouezec, Robert Joliet. Valuing an investment project using no-arbitrage and the alpha-maxmin criteria: From Knightian uncertainty to risk. Economics Letters, 2019, 178, pp.111-115. ⟨10.1016/j.econlet.2019.03.007⟩. ⟨hal-02504260⟩
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