Adoption of uncertain multi-stage technology projects: a real options approach (Q5931984)

Following the approach to irreversible investments, the opportunity of adopting a new uncertain technology can be viewed as representing a real option to the firm. For the purpose of their analysis, the authors develop a new approach based on the Green function for finding the optimal exercise threshold of the ordinary real option associated with the updating decision as well as the compound real option associated with the adoption decision regarding an incumbent technology. The latter incorporates as an embedded option a technologically uncertain prospect of offering opportunities for updating such an incumbent technology to future superior versions.