Timing Decisions in a Multinational Context: Implementing the Amin/Bodurtha Framework

Manfred Frühwirth, Paul Schneider, Markus Schwaiger

    Publikation: Wissenschaftliche FachzeitschriftOriginalbeitrag in FachzeitschriftBegutachtung

    Abstract

    The Amin/Bodurtha framework was developed for the valuation of American-style financial instruments driven by three sources of uncertainty— domestic interest rate risk, foreign interest rate risk and exchange rate risk. The model is not only appropriate for pricing a number of financial derivatives, but also, as we show, for valuing foreign investment projects in the presence of real options. In this paper we propose the most natural directly implementable specification within the Amin/Bodurtha framework that permits all combinations of up and down moves of these three risk factors without restricting volatility functions of the factors or correlations between them. By use of the depth-first algorithm, we can show that this specification is implementable at reasonable computation times (JEL: G13, G31, F30).
    OriginalspracheEnglisch
    Seiten (von - bis)157 - 178
    FachzeitschriftMultinational Finance Journal
    Jahrgang11
    Ausgabenummer3/4
    PublikationsstatusVeröffentlicht - 1 Apr. 2007

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