Learning Your Options: Option-Based Model of Export Readiness and Optimal Export |
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Authors: | Kirill Ilinski |
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Institution: | 1.National Economics Research Center (NERC), St.-Petersburg University, 7-9-11 Universitetskaya Embankment, 199034 St. Petersburg, Russia;2.Fusion Group, 8-10 Great George St., London SW1P 3AE, UK |
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Abstract: | In this short note we offer a novel quantitative approach to modeling of early stages of firm’s internalization, namely stages of accumulation of export readiness and their export debut. In particular, we introduce a new model of export readiness and offer an explicit way of how the export readiness can be accounted in the company share price. The model considers export readiness as a non-observable intangible asset that changes a firm’s asset dynamics. This, in the framework of an option-based debt-equity Merton model, affects both the equity and debt of the company. The approach also allows one to define the contribution of export readiness to equity price and to find a self-consistent quantitative solution to the problem of optimal export strategy and the corresponding optimal firm’s capital allocation. |
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Keywords: | export readiness internationalization options pricing |
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