Some general results about the optimal timing of relocation

Azevedo-Pereira, José; Couto, Gualter; Nunes, Cláudia

http://hdl.handle.net/10400.3/4819

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Authors

Azevedo-Pereira, José

Couto, Gualter

Nunes, Cláudia

Abstract(s)

In this paper we derive general results concerning the optimal switching level in the problem of the optimal relocation policy for a firm that faces two types of uncertainty: one about the moments in which new (and more efficient) sites will become available; and the other regarding the degree of efficiency improvement inherent to each one of these new, yet to be known, potential location places. In particular, we note that the optimal switching level depends on the distribution of the degree of efficiency improvement only through an expected value. Impacts on the final results driven by the characteristics of the firm’s original location site, the market environment and the way in which risk is modelled are studied numerically. The overall results are in line with economic intuition.

Keywords

Finance Real Options Optimal Timing

URI

http://hdl.handle.net/10400.3/4819

Citation

Azevedo-Pereira, José; Couto, Gualter; Nunes, Cláudia (2008). Some general results about the optimal timing of relocation, "Working Paper Series", 2, 15 pp.. Ponta Delgada: Universidade dos Açores, CEEAplA-A.