[Publisher:] Institut für Weltwirtschaft (IfW) [Place:] Kiel [Year:] 1998
Kiel Working Paper No. 847
Kiel Institute of World Economics (IfW), Kiel
The paper derives a valuation formula for the real option of a firm to undertake an irreversible investment in a foreign economy based on the endogenous dynamics of a stochastic macroeconomic framework with sluggish price adjustment. The option valuation formula is implemented to analyze the impact of macroeconomic dynamics on the attraction of an economy for foreign investors.