Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/90724
Authors: 
Lund, Diderik
Nymoen, Ragnar
Year of Publication: 
2013
Series/Report no.: 
Memorandum, Department of Economics, University of Oslo 14/2013
Abstract: 
Comparative-statics results for financial options are often assumed to hold for real options. But the effects of higher volatility need not be increased value and postponed investment. This depends on signs of correlations and what parameters are held constant. For real options, the rate-of-return shortfall may change. The CAPM is commonly used to determine this. In contrast with widespread assumptions, the empirical analysis shows that the correlation of the returns on oil and the stock market is nonpositive and not invariant to changes in volatility. For crude oil during 1993-2008, these changes are identified as three significant breaks.
Subjects: 
real options
oil
volatility
CAPM
comparative statics
JEL: 
D92
G13
G31
Q30
Q40
Document Type: 
Working Paper

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