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Continuous-Time Option Games: Review of Models and Extensions

Author

Listed:
  • Marco Antonio Guimaraes Dias

    (PUC-Rio, Brazil)

  • Jose Paulo Teixeira

    (PUC-Rio, Brazil)

Abstract
This paper discusses a selected literature on continuous-time option games models, providing new insights and extensions. The paper analyzes both symmetrical and asymmetrical duopoly under uncertainty, including issues like preemption, non-binding collusion, perfect-Nash equilibriums, first-mover advantage, mixed strategies, probability of mistake with simultaneous exercise, competitive advantage effect, etc. In the first model, the demand follows a stochastic process, whereas in the second model the exchange rate follows a stochastic process. This paper presents two equivalent ways to calculate the leader and follower values and thresholds, the differential and the integral methods. The paper extends the Joaquin and Buttler’s model by considering mixed strategies in asymmetric duopoly and other extensions.

Suggested Citation

  • Marco Antonio Guimaraes Dias & Jose Paulo Teixeira, 2010. "Continuous-Time Option Games: Review of Models and Extensions," Multinational Finance Journal, Multinational Finance Journal, vol. 14(3-4), pages 219-254, September.
    • Handle: RePEc:mfj:journl:v:14:y:2010:i:3-4:p:219-254
    as

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    References listed on IDEAS

    as
    1. repec:fth:tilbur:9992 is not listed on IDEAS
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    More about this item

    Keywords

    option games; real options; game theory; duopoly under uncertainty; preemption;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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