The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Valuing Flexibility as a Complex Option
Published: 06/01/1990 | DOI: 10.1111/j.1540-6261.1990.tb03702.x
ALEXANDER J. TRIANTIS, JAMES E. HODDER
This paper develops an approach for valuing flexible production systems using contingent claims pricing. Demand curves for our model's underlying assets (output products) may be downward sloping, in contrast with the standard option pricing assumption. Also, our marginal production(exercise) costs may be increasing. In addition, we allow for multiple products and a production capacity constraint. These elements of the model result in complex exercise decisions for the contingent claims which comprise the production system's value. We illustrate our approach by valuing a flexible system that produces two products which have profit margin functions with stochastic parameters.
Interactions of Corporate Financing and Investment Decisions: A Dynamic Framework
Published: 09/01/1994 | DOI: 10.1111/j.1540-6261.1994.tb02453.x
DAVID C. MAUER, ALEXANDER J. TRIANTIS
This article analyzes the interaction between a firm's dynamic investment, operating, and financing decisions in a model with operating adjustment and recapitalization costs. Using numerical analysis, we solve the model for cases that highlight interaction effects. We find that higher production flexibility (due to lower costs of shutting down and reopening a production facility) enhances the firm's debt capacity, thereby increasing the net tax shield value of debt financing. While higher financial flexibility (resulting from lower recapitalization costs) has a similar effect, production flexibility and financial flexibility are, to some extent, substitutes. We find that the impact of debt financing on the firm's investment and operating decisions is economically insignificant.