Hedging entry and exit decisions: activating and deactivatingbarrier options

[摘要] Abstract. Investment projects and businesses can be entered or exited at a cost,and the theory of real option teaches us how to find optimal activity levels that shouldtrigger entry or exit. However, in practice, different managers or owners operate underdifferent constraints and might apply different thresholds to the same business. We areinterested in the hedging of the risk related to the cost of sub-optimal entry or exit.We introduce a new class of derivative products that can hedge this risk. The pricingof these derivatives involves the joint law of a Brownian excursion and its supremum,which is calculated thanks to Bessel processes-related distribution laws.

[学科分类] 自然科学（综合）