This research studies the strategic level decision-making in the biofuel industry by considering the effect of investment and disinvestment delay. Under uncertain environments, the delay causes additional risk exposure to decision makers, and the optimal decision reflects the effect of delay. This research provides the concise and comprehensive profile of the optimal investment and disinvestment policy by taking investment and disinvestment delay into consideration. The results show that the trend of fuel price plays a crucial role to determine the effect of delay. If the trend is favorable to the alternative biofuel plant, longer exercise delays provide the decision makers an incentive to act more quickly, and shorter delays provide an opposite incentive. By applying the suggested model to the bioenergy investments cases in the state of Georgia, the United States, we provide managerial insights for the strategic decision makers in the biofuel industry.
This paper selects an actual company and conducts a case study with respect to a new business for the company.We observe that the company is starting a membrane ceilings business alongside its existing business selling iron.We apply a real options approach to it and provide valuable implications with regard to managerial decision-making under uncertainty.In this paper, in addition to the standard Net Present Value method and the option pricing theory under risk, the potential model risk is explicitly analyzed.For this reason, this paper analyzes the business under ambiguity.In order to analyze the actual business, we first develop a systematic procedure for deriving managerial flexibility under uncertainty.This includes specifying important risk factors, seeking real options, parameter estimation, handling ambiguity, and deriving the optimal strategy. It reveals that the company is subject to four sources of uncertainty and has two types of real options.Furthermore, we formulate the business as a multiplier robust control problem to evaluate the project value under ambiguity.Our quantitative analysis shows that the real options have a significant impact on the project value of the membrane ceilings business.It further shows that, although the presence of ambiguity changes the optimal exercise strategy,the difference between the optimal strategy under ambiguity and that under risk is not significant from a practical viewpoint.
We consider a cash management problem where the cash demand is assumed to be double exponential jump-diffusion processes. We formulate a model minimizing the sum of the transaction and holding-penalty costs as an impulse control model. The model reduces to the problem of solving a Quasi-variational Inequality (QVI), and the function satisfying QVI is derived. We show that there is an optimal policy of the two-band type. Moreover, we discuss the effect of jumps on the optimal policy through some numerical examples.