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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Scott Mathews & Vinay Datar & Blake Johnson, 2007. "A Practical Method for Valuing Real Options: The Boeing Approach," Journal of Applied Corporate Finance, Morgan Stanley, Morgan Stanley, vol. 19(2), pages 95-104.
- Pindyck, Robert S., 1990.
"Irreversibility, uncertainty, and investment,"
Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management
3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Pindyck, Robert S, 1991. "Irreversibility, Uncertainty, and Investment," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 29(3), pages 1110-48, September.
- Robert S. Pindyck, 1990. "Irreversibility, Uncertainty, and Investment," NBER Working Papers 3307, National Bureau of Economic Research, Inc.
- Pindyck, Robert, 1989. "Irreversibility, uncertainty, and investment," Policy Research Working Paper Series, The World Bank 294, The World Bank.
- Collan, Mikael, 2004. "Giga-Investments: Modelling the Valuation of Very Large Industrial Real Investments," MPRA Paper 4328, University Library of Munich, Germany.
- Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, Elsevier, vol. 7(3), pages 229-263, September.
- Boyle, Phelim P., 1977. "Options: A Monte Carlo approach," Journal of Financial Economics, Elsevier, Elsevier, vol. 4(3), pages 323-338, May.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Zmeskal, Zdenek, 2001. "Application of the fuzzy-stochastic methodology to appraising the firm value as a European call option," European Journal of Operational Research, Elsevier, Elsevier, vol. 135(2), pages 303-310, December.
- Yoshida, Yuji, 2003. "The valuation of European options in uncertain environment," European Journal of Operational Research, Elsevier, Elsevier, vol. 145(1), pages 221-229, February.
- R. E. Bellman & L. A. Zadeh, 1970. "Decision-Making in a Fuzzy Environment," Management Science, INFORMS, INFORMS, vol. 17(4), pages B141-B164, December.
- Muzzioli, Silvia & Torricelli, Costanza, 2001. "A Model For Pricing An Option With A Fuzzy Payoff," Fuzzy Economic Review, International Association for Fuzzy-set Management and Economy (SIGEF), International Association for Fuzzy-set Management and Economy (SIGEF), vol. 0(1), pages 49-87, May.
- HATAMI-MARBINI, Adel & TAVANA, Madjid & EMROUZNEJAD, Ali & SAATI, Saber, . "Efficiency measurement in fuzzy additive data envelopment analysis," CORE Discussion Papers RP, UniversitÃ© catholique de Louvain, Center for Operations Research and Econometrics (CORE) -2393, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- repec:cor:louvrp:2393 is not listed on IDEAS
- Opzione (finanza) in Wikipedia Italian ne '')
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.