Rune Stenbacka

Adoption of uncertain multi-stage technology projects: a real options approach

Abstract This study develops a real options approach in order to characterize the optimal timing of when to adopt an incumbent technology, incorporating as an embedded option a technologically uncertain prospect of opportunities for updating the technology to future superior versions. We develop a new mathematical approach based on the Green representation of Markovian functionals for finding the optimal exercise thresholds both of the ordinary real option associated with the updating decision and of the compound real option associated with the incumbent technology. We characterize how the real option values depend on the underlying market uncertainty and on the uncorrelated technological uncertainty regarding future new generations of the technology.

Market structure and diversification of mutual funds

Abstract This study characterizes a systematic relationship between the diversification incentives and the market structure of the mutual funds industry with investors differentiated by their attitude towards risk. With sufficiently low competition the subgame perfect portfolio equilibrium exhibits maximal risk differentiation. With intensified competition intermediate funds, i.e., those attracting investors with intermediate attitudes towards risk, select diversified portfolios. Finally, we offer a general characterization of how imperfect competition between risk-differentiated funds will generate an equilibrium relationship between risk and expected returns.