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Quantifying Flexibility Real Options Calculus

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  • Makhankov, V. G.
  • Aguero-Granados, M. A.
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    Abstract

    We expose a real options theory as a tool for quantifying the value of the operating flexibility of real assets. Additionally, we have pointed out that this theory is an appropriated methodology for determining optimal operating policies, and provide an example of successful application of our approach to power industries, specifically to valuate the power plant of electricity. In particular by increasing the volatility of prices will eventually lead to higher assets values.

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    File URL: http://mpra.ub.uni-muenchen.de/24419/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24419.

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    Date of creation: 07 Jul 2010
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    Handle: RePEc:pra:mprapa:24419

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    Related research

    Keywords: real options; Black-Scholes Approach; Wiener processes; stochastic processes; Quantifying Flexibility; volatility;

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    1. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
    2. Margrabe, William, 1978. "The Value of an Option to Exchange One Asset for Another," Journal of Finance, American Finance Association, vol. 33(1), pages 177-86, March.
    3. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
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