Abstract
We study the impact of ambiguity on the pricing and timing of the option to invest. There is a funding gap to undertake the investment, which is covered by entering into an equity-for-guarantee swap (EGS). Our model predicts that the more ambiguity-averse the agents, the less the option value, the later the investment, the higher the guarantee cost and the leverage. If the entrepreneur is more ambiguity-averse than the insurer, the investment threshold slightly rises as the perceived ambiguity increases and if the entrepreneur is less ambiguity-averse than the insurer, the investment threshold increases sharply as the perceived ambiguity rises.
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