A Fuzzy Pay-off Method for Real Option Valuation
AbstractReal Options analysis offers interesting insights on the value of assets and on the profitability of investments, which has made real options a growing field of academic research and practical application. Real option valuation is, however, often found to be difficult to understand and to implement due to the quite complex mathematics involved. Recent advances in modeling and analysis methods have made real option valuation easier to understand and to implement. This paper presents a new method (fuzzy pay-off method) for real option valuation using fuzzy numbers that is based on findings from earlier real option valuation methods and from fuzzy real option valuation. The method is intuitive to understand and far less complicated than any previous real option valuation model to date. The paper also presents the use of number of different types of fuzzy numbers with the method and an application of the new method in an industry setting.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 13601.
Date of creation: Oct 2008
Date of revision:
Real Option Valuation; Fuzzy Real Options; Fuzzy Numbers;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
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