Carmona, J., and A. León
Finance Research Letters – 4 (2007) 242-253

Keywords: CIR processProject valueReal optionsRisk aversion

Abstract: We analyze extensively the characteristics of the solution to an irreversible investment decision when the only source of uncertainty comes from interest rates. They are assumed to be driven by the popular Cox–Ingersoll–Ross (CIR) stochastic process. Particular attention is paid to the impact that both CIR parameters and risk aversion have on the threshold rate.