Investments under uncertainty

Course description

The course covers a range of issues related to investment projects valuation. The students will learn that such valuation can be done with the models for pricing standard financial contracts — specifically, options. The students will also master application of stochastic processes theory and methods of dynamic programming to account for uncertainty elements when planning for major components of investment cash flow — incomes and expenditures.

Topics

1. Optimal stopping and American options
2. Investments as contracts
3. Dynamic optimization under uncertainty
4. Sequential investment. Incremental investment
5. Conservation decisions
6. Dynamic equilibrum
7. Investments under imperfect competition

Literature

• Brealey R. A., Myers S. C. Principles of Corporate Finance. New York: McGraw-Hill Book Company, 2003.
• Dixit A. K., Pindyck R. S. Investments under Uncertainty. Princeton University Press, 1994.
• Duffie D. Dynamic Asset Pricing Theory. Princeton University Press, 2001.
• Hull J. C. Options, Futures and other Derivatives. 8th ed. NJ: Prentice-Hall, 2011.
• Merton R. Continuous-Time Finance. Oxford, UK: Blackwell, 1992.
• Shreve S. E. Stochastic Calculus for Finance II. New York: Springer, 2004.