We are grateful to an anonymous referee for his helpful comments and John A. Doukas, the EFM editor. We also thank Jonathan Berk, Matias Braun, Pierre Collin-Dufresne, Gonzalo Cortazar, Dwight Jaffee, Peng (Peter) Liu, Mara Madaleno and seminar participants at Pontificia Universidad Catolica de Chile, Universidad de Chile (CEA), UC Berkeley (brown bag seminar series), the 2007 Real Options Conference, the 2007 SECHI Meeting and the 2009 EFM Symposium on Risk Management in Financial Institutions. Casassus acknowledges financial support from FONDECYT (grant 1070688). Most of the work was completed while Casassus was at the Escuela de Ingenieria de la Pontificia Universidad Catolica de Chile. Correspondence: Jaime Casassus.