Electronic Resource
Oxford, UK; Malden, USA
:
Blackwell Publishing Ltd/Inc.
Journal of business finance & accounting
31 (2004), S. 0
ISSN:
1468-5957
Source:
Blackwell Publishing Journal Backfiles 1879-2005
Topics:
Economics
Notes:
Abstract: We determine optimal investment criteria for a capital project whose cash flows evolve in terms of a ‘modified square root’ process. The modified square root process has properties similar to the Cox, Ingersoll and Ross (1985)‘square root’ process but in addition, encompasses the possibility of negative cash flows. Although closed form solutions for the valuation equations implied by the modified square root process are the exception rather than the rule we are able to show that analytic solutions, in the form of infinite power series expansions, will always exist. Furthermore, we also show that when a prescribed set of regularity conditions is satisfied, these power series expansions converge to closed form valuation functions. The optimality criteria for capital investment decisions are then simplified considerably.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1111/j.0306-686X.2004.00580.x
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