We ask when parallel investments, for example in a portfolio of several R&D projects, should be discontinued in order to eventually pick a winner. There is a tradeoff between having more projects or options, which increases the probability of success of at least one project, and the cost required to continue each project. We assume that the performance of each project is governed by a general Ito process, while opportunities to drop underperforming options are generated by an independent Poisson process. We provide a new, constructive method whereby the option value can be found as (the limit of) an increasing sequence of lower bounds. The multidimensional theory developed here underlies many complex real-world stopping decisions that are often solved sub-optimally.
Co-author: Dr Rutger-Jan Lange, Erasmus University Rotterdam
How to participate in this seminar:
1. Book your nearest ACE facility;
2. Notify Fabricio Oliveira at RMIT to notify you will be participating.
No access to an ACE facility? Contact Maaike Wienk to arrange a temporary Visimeet licence for remote access (limited number of licences available – first come first serve)