292 research outputs found
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Optimal regime switching under risk aversion and uncertainty
echnology adoption is key for corporate strategy, often determining the success or failure of a company as a whole. However, risk aversion often raises the reluctance to make a timely technology switch, particularly when this entails the abandonment of an existing market regime and entry in a new one. Consequently, which strategy is most suitable and the optimal timing of regime switch depends not only on market factors, such as the definition of the market regimes, as well as economic and technological uncertainty, but also on attitudes towards risk. Therefore, we develop a utility-based, regime-switching framework for evaluating different technology-adoption strategies under price and technological uncertainty. We assume that a decisionmaker may invest in each technology that becomes available (compulsive) or delay investment until a new technology arrives and then invest in either the older (laggard) or the newer technology (leapfrog). Our results indicate that, if market regimes are asymmetric, then greater risk aversion and price uncertainty in a new regime may accelerate regime switching. In addition, the feasibility of a laggard strategy decreases (increases) as price uncertainty in an existing (new) regime increases. Finally, although risk aversion typically favours a compulsive and a laggard strategy, a leapfrog strategy may be feasible under risk aversion provided that the output price and the rate of innovation are sufficiently high
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Sequential investment in renewable energy technologies under policy uncertainty
Although innovation and support schemes are among the main forces that drive investment in renewable energy (RE) technologies, both involve considerable uncertainty. We develop a real options framework to analyse the impact of technological, policy and electricity price uncertainty on the decision to invest sequentially in successively improved versions of a RE technology. Technological uncertainty is reflected in the random arrival of innovations, and policy uncertainty in the likely provision or retraction of a subsidy that takes the form of a fixed premium on top of the electricity price. We show that greater likelihood of subsidy retraction (provision) lowers (raises) the incentive to invest, and, by comparing a stepwise to a lumpy investment strategy, we show how an embedded option to adopt an improved technology version mitigates the impact of subsidy retraction on investment timing. Specifically, we show how stepwise investment facilitates earlier technology adoption compared to lumpy investment, and that, under stepwise investment, technological uncertainty accelerates technology adoption, thus further offsetting the incentive to delay investment in the light of subsidy retraction
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Stepwise Green Investment under Policy Uncertainty
We analyse how market price and policy uncertainty, in the form of random provision or retraction of a subsidy, interact to affect the optimal time of investment and the size of a renewable energy (RE) project that can be completed in either a single (lumpy investment) or multiple stages (stepwise investment). The subsidy takes the form of a fixed premium on top of the electricity price, and, therefore, investment is subject to electricity price uncertainty. We show that the risk of a permanent retraction (provision) of a subsidy increases (decreases) the incentive to invest, yet lowers (raises) the amount of installed capacity, and that this result is more pronounced as the size of the subsidy increases. Additionally, we show that increasing the number of policy interventions lowers the expected value of a subsidy and the size of the project. Furthermore, we illustrate that, although an increase in the size of a subsidy lowers the relative value of the stepwise investment strategy, the expected value of a lumpy investment strategy is still lower than that of stepwise investment
Phytosociological study of Hirschfeldia incana (L.) Lagraze-Fossat (Cruciferae) communities in mainland Greece
Using numerical analysis, the phytosociological study of Hirschfeldia incana communities in mainland Greece allowed their classification into the Rapistro rugosi-Hirschfeldietum incanae ass. nov., a new subnitrophilous association of the Hordeion leporini alliance. Three subassociations were distinguished (anthemidetosum incrassatae, hedypnoidetosum creticae and cardarietosum drabae), the distribution of which seems to depend on latitudinal alteration of rainfall. The new association has its optimum growth in habitats with moderate human influence, specifically in abandoned cultivations and wastelands. With respect to its floristic composition, the Rapistro rugosi-Hirschfeldietum incanae is close to anthropogenic vegetation with a high degree of naturalness, particularly to the therophytic,
subnitrophilous vegetation of the Thero-Brometalia (Stellarietea mediae) and the perennial, subnitrophilous vegetation of Carthametalia lanati (Artemisietea vulgaris)
Investment decision making under uncertainty: the impact of risk aversion, operational flexibility, and competition
Traditional real options analysis addresses investment under uncertainty
assuming a risk-neutral decision maker and complete markets.
In reality, however, decision makers are often risk averse and markets
are incomplete. Additionally, capital projects are seldom now-or-never investments and can be abandoned, suspended, and resumed
at any time.
In this thesis, we develop a utility-based framework in order to examine
the impact of operational flexibility, via suspension and resumption
options, on optimal investment policies and option values.
Assuming a risk-averse decision maker with perpetual options to suspend
and resume a project costlessly, we confirm that risk aversion
lowers the probability of investment and demonstrate how this effect
can be mitigated by incorporating operational flexibility. Also, we illustrate
how increased risk aversion may facilitate the abandonment of
a project while delaying its temporary suspension prior to permanent
resumption.
Besides timing, a firm may have the freedom to scale the investmentâs
installed capacity. We extend the traditional real options approach to
investment under uncertainty with discretion over capacity by allowing
for a constant relative risk aversion utility function and operational
flexibility in the form of suspension and resumption options. We find
that, with the option to delay investment, increased risk aversion facilitates
investment and decreases the required investment threshold
price by reducing the amount of installed capacity.
We explore strategic aspects of decision making under uncertainty
by examining how duopolistic competition affects the entry decisions of risk-averse investors. Depending on the discrepancy between the
market share of the leader and the follower, greater uncertainty may
increase or decrease the discrepancy in the non-pre-emptive leaderâs
relative value. Furthermore, risk aversion does not affect the loss in
the value of the leader for the pre-emptive duopoly setting, but it
makes the loss in value relatively less for the leader in a non-preemptive duopoly setting
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Systematic analysis of the evolution of electricity and carbon markets under deep decarbonization
The decarbonization of electricity generation presents policy makers in many countries with the delicate task of balancing initiatives for technological change with a commitment to market liberalization. Despite the theoretical attractions, it has become doubtful whether carbon markets by themselves can offer the desired solution. We address this question through an integrated modeling framework, stylized for the Great Britain (GB) power market within the EU ETS, which includes three distinct components: (a) long-term least-cost capacity planning, similar in functionality to many used in policy analysis, but innovative in providing the endogenous calculation of carbon prices; (b) short-term price risk analysis producing hourly dispatch and pricing outputs, which are used to test the annual financial performance metrics implied by the longer-term investments; and (c) agent-based computational learning to derive pricing behavior in imperfect markets. The results indicate that the risk/return profile of electricity markets may deteriorate substantially as a result of decarbonization, reducing the propensity of companies to invest in the absence of increased government support and/or more beneficial market circumstances. If allowed, markets may adjust by deferring investment until conditions improve, consolidating to increase market power, or operating in a tighter market with reduced spare capacity. To the extent that each of these âmarket-ledâ solutions may be politically unpalatable, policy design will need to sustain a delicate regulatory regime, moderating the possible increased market power of companies while maintaining low-carbon subsidies for longer than expected. This paper considers some of the modeling implications for this compromise
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A bi-level model for optimal capacity investment and subsidy design under risk aversion and uncertainty
Meeting ambitious sustainability targets motivated by climate change concerns requires the structural transformation of many industries and the careful alignment of firm- and Government-level policymaking. While private firms rely on Government support to achieve timely the necessary green investment intensity, Governments rely on private firms to tackle financial constraints and technology transfer. This interaction is analysed in the real options literature only under risk neutrality, and, consequently, the implications of risk aversion due to the idiosyncratic risk that green technologies entail are overlooked. To analyse how this interaction impacts a firmâs investment policy and a Governmentâs subsidy design under uncertainty and risk aversion, we develop a real options framework, whereby: (i) we solve the firmâs investment problem assuming an exogenous subsidy; (ii) conditional on the firmâs optimal investment policy, we address the Governmentâs optimisation objective and derive the optimal subsidy level; (iii) we insert the optimal subsidy level in (i) to derive the firmâs endogenous investment policy. Contrary to existing literature, results indicate that greater risk aversion lowers the amount of installed capacity yet postpones investment. Also, although greater uncertainty raises the optimal subsidy under risk neutrality, the impact of uncertainty is reversed under high levels of risk aversion
The impact of temperature on wave interaction with damage in composite structures
The increased use of composite materials in modern aerospace and automotive structures, and the broad range of launch vehiclesâ operating temperature imply a great temperature range for which the structures has to be frequently and thoroughly inspected. A thermal mechanical analysis is used to experimentally measure the temperature-dependent mechanical properties of a composite layered panel in the range of â100ââ to 150ââ. A hybrid wave finite element/finite element computational scheme is developed to calculate the temperature-dependent wave propagation and interaction properties of a system of two structural waveguides connected through a coupling joint. Calculations are made using the measured thermomechanical properties. Temperature-dependent wave propagation constants of each structural waveguide are obtained by the wave finite element approach and then coupled to the fully finite element described coupling joint, on which damage is modelled, in order to calculate the scattering magnitudes of the waves interaction with damage across the coupling joint. The significance of the panelâs glass transition range on the measured and calculated properties is emphasised. Numerical results are presented as illustration of the work
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