Sensitivity Analysis for Cash Flow Simulation Based Real Option Valuation

2011 ◽  
Author(s):  
Tero J. Haahtela
Keyword(s):  
Sensitivity Analysis ◽  
Cash Flow ◽  
Real Option ◽  
Flow Simulation ◽  
Option Valuation ◽  
Real Option Valuation ◽  
Simulation Based

Cash flow estimation for real option analysis using Margrabe's model

2006 ◽  
Vol 56 (2) ◽  
pp. 183-194
Author(s):  
György Andor ◽  
Gábor Bóta
Keyword(s):  
Cash Flow ◽  
Real Option ◽  
Cash Flows ◽  
Option Valuation ◽  
Real Option Analysis ◽  
Flow Estimation ◽  
Capital Budget ◽  
Real Option Valuation ◽  
Exercise Price ◽  
Black Scholes

This paper looks at how the parameters for real option analysis can be extracted from the general capital budget of a project and discusses how the estimated cash flows of a general project can be used for a real option analysis. A project is described where it is possible to stop the business operation in case of predicting a loss for the next year. Our model shows how the cash flow of the period influenced by the option-like decision has to be separated in order to get the exercise price and the price of the underlying asset for real option valuation. Besides providing arguments against the suitability of the general Black-Scholes formula for real option situations, the paper also shows how Margrabe's exchange option valuation formula may be used, and how the volatility as a parameter of this model can be calculated from the data available about the project.

A FUZZY REAL OPTION VALUATION APPROACH TO CAPITAL BUDGETING UNDER UNCERTAINTY ENVIRONMENT

2010 ◽  
Vol 09 (05) ◽  
pp. 695-713 ◽  
Author(s):  
SHIN-YUN WANG ◽  
CHENG-FEW LEE
Keyword(s):  
Cash Flow ◽  
Real Option ◽  
Capital Budgeting ◽  
Decision Time ◽  
Optimal Decision ◽  
Option Valuation ◽  
Real Option Valuation ◽  
Flow Information ◽  
Present Worth ◽  
Uncertainty Environment

The information needed for capital budgeting is generally not known with certainty. The sources of uncertainty may be the net cash inflows, the life of the project, or the discount rate. We propose a capital budgeting model under uncertainty environment in which the concept of probability is employed in describing fuzzy events and cash flow information can be specified as a special type of fuzzy numbers. The present worth of each fuzzy project cash flow can be subsequently estimated. At the same time, to select fuzzy projects and determine the optimal decision time under limited capital budget, we offer an example to analyze the results of the capital budgeting problem under uncertainty using a fuzzy real option valuation.

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