Risk Analysis in Investment Appraisal
AbstractThis paper was prepared for the purpose of presenting the methodology and uses of the Monte Carlo simulation technique as applied in the evaluation of investment projects to analyse and assess risk. The first part of the paper highlights the importance of risk analysis in investment appraisal. The second part presents the various stages in the application of the risk analysis process. The third part examines the interpretation of the results generated by a risk analysis application including investment decision criteria and various measures of risk based on the expected value concept. The final part draws some conclusions regarding the usefulness and limitations of risk analysis in investment appraisal.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0409020.
Length: 33 pages
Date of creation: 07 Sep 2004
Date of revision:
Note: Type of Document - pdf; pages: 33
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Risk Analysis; Monte Carlo simulation; Investment appraisal; Project analysis; Forecasting and simulation; Business administration;
Other versions of this item:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- O22 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
- M10 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - General
This paper has been announced in the following NEP Reports:
- NEP-CFN-2004-09-12 (Corporate Finance)
- NEP-CMP-2004-09-30 (Computational Economics)
- NEP-FIN-2004-09-12 (Finance)
- NEP-RMG-2004-09-12 (Risk Management)
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- Glenn Jenkins & Chun-Yan Kuo & Arnold C. Harberger, 2011. "Cost-Benefit Analysis for Investment Decisions: Chapter 6 (Dealing With Uncertainty and Risk in Investment Appraisal)," Development Discussion Papers 2011-06, JDI Executive Programs.
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