Supplements for my BSc thesis

This repository contains supplementing MATLAB codes and figures of my BSc thesis (Effect of Stochastic Demand on Exit and Entry - Applying Real Option Theory, available on SSRN, where 2 different stochasic dynamics of market demand (geometric Brownian motion and mean-reverting process) are studied.

Geometric Brownian Market Demand

The gBm_baseline contains a equilibrium market model with geometric Brownian demand. Codes and figures in this folder serve as a benchmark for the following mean-reverting case and are replications of models proposed by Pindyck (2009) and Bustamante and Donangelo (2017).

To compute entry and exit threshold in a geometric Brownian market:

• plot_threhold.m

To compute the value of incumbent firms:

• plot_val_func_GBM.m

To plot risk-loading functions w.r.t. omega under different degrees of concentration (i.e. different numbers of incumbents) in Bustamante and Donangelo (2017):

• plot_betas_GBM.m

mean_reverting/figures contains output figures of the scripts.

Mean-reverting Market Demand

The mean_reverting directory contains my main contribution of studying mean-reverting market demands.

To perform comparative static analysis in mean-reverting markets for each parameter:

• Batch_E_MRV.m : comparative statics for exit sunk cost, $E$
• Batch_eta_MRV.m : comparative statics for reverting speed, $\eta$
• Batch_I_MRV.m : comparative statics for entry sunk cost, $I$
• Batch_n_MRV.m : comparative statics for number of active firms, $n$
• Batch_ph_MRV.m : comparative statics for fixed operating cost, $\phi_i$
• Batch_sgm_MRV.m : comparative statics for volatility rate of market size, $\sigma$
• Batch_tht_st_MRV.m : comparative statics for mean market size, $\theta^*$

To perform additional numerical experiments discussed in appendix:

• Experiment_1.m : replicate oligopoly effect
• Experiment_2.m : replicate dilution effect

To replicate figure that plots entry and exit thresholds under different numbers of active firms:

• Plot_Threshold_MRV.m

To replicate figure that plots value functions under different numbers of active firms:

• Plot_Value_functions_MRV.m

To replicate figure that plots systematic risk loadings of incumbents under different numbers of active firms:

• Plot_Betas_MRV.m

mean_reverting/auxilaries contains subroutines for the above MATLAB scripts.

mean_reverting/figures contains output figures of the scripts.