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We present a detailed description of storage options valuation using a multilevel tree methodology which takes into account both the stochastic evolution of the energy commodity price underlying the storage contract or asset, as well as the storage facility operational constraints. We derive also a quasi-analytical solution for the storage value as a strip of calendar spread options, which is applicable when the storage constraints are ignored. The two valuation methodologies are applied within the framework of a one-factor and a two-factor diffusion model for the commodity price. As an interesting example of a path-dependent option with American exercise style, we take a look at the storage option injection and withdrawal exercise price boundaries and examine how these exercise decision boundaries are influenced by variations in the model's input parameters. We provide numerical results illustrating the dependence of the storage option value on the price model parameters, and interpret the observed parameter dependence using the calendar spreads formula as a useful analysis tool. We analyze and present numerical results regarding the dependence of the option value on the storage operational parameters.

A generalized Black–Scholes–Merton economy is introduced. The economy is driven by Brownian motion in random time that is taken to be continuous and independent of Brownian motion. European options are priced by the no-arbitrage principle as conditional averages of their classical values over the random time to maturity. The prices are path dependent in general unless the time derivative of the random time is Markovian. An explicit self-financing hedging strategy is shown to replicate all European options by dynamically trading in stock, money market, and digital calls on realized variance. The notion of the average price is introduced, and the average price of the call option is shown to be greater than the corresponding Black–Scholes price for all deep in- and out-of-the-money options under appropriate sufficient conditions. The model is implemented in limit lognormal random time. The significance of its multiscaling law is explained theoretically and verified numerically to be a determining factor of the term structure of implied volatility.

In this paper, we extend the first-order asymptotics analysis of Fouque et al. to general path-dependent financial derivatives using Dupire’s functional Itô calculus. The main conclusion is that the market group parameters calibrated to vanilla options can be used to price to the same order exotic, path-dependent derivatives as well. Under general conditions, the first-order condition is represented by a conditional expectation that could be numerically evaluated. Moreover, if the path-dependence is not too severe, we are able to find path-dependent closed-form solutions equivalent to the first-order approximation of path-independent options derived in Fouque et al. Additionally, we exemplify the results with Asian options and options on quadratic variation.

This paper presents a case history of an Ericsson design centre in the Netherlands, from its founding in 1990 till its dramatic end in 2003. The paper describes the development of the organisation over the years — its origins, the abundant growth, the many organisational and technological metamorphoses it underwent and the eventual downfall. The purpose of this paper is to search for patterns in the dynamics of internationally operating R&D organisations and to clarify the peculiarities in the innovation journey of this Ericsson design centre. In particular, we focus on the actions of local R&D managers, the design of organisational forms, the relation between technology and organisation, and the relation between local design centres and their headquarters.