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A Valuation Model for Project Standby Capacity

Author

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  • Jan Vlachý

Abstract

This paper addresses the issue of project standby capacity optimization for capital budgeting. A detailed analysis and case study show that this is a particular real-option based situation, which solicits the use of statistical simulation. The method can be recommended as a useful heuristic for corporate capital budgeting, as well as for college-level class instruction.

Suggested Citation

  • Jan Vlachý, 2009. "A Valuation Model for Project Standby Capacity," Ekonomika a Management, University of Economics, Prague, vol. 2009(4).
  • Handle: RePEc:prg:jnleam:v:2009:y:2009:i:4:id:83
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    References listed on IDEAS

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    1. Wiegand, Ryan E., 2006. "Introductory Econometrics: Using Monte Carlo Simulation With Microsoft Excel. Humberto Barreto and Frank M. Howland," Journal of the American Statistical Association, American Statistical Association, vol. 101, pages 1730-1731, December.
    2. Barreto,Humberto & Howland,Frank, 2006. "Introductory Econometrics," Cambridge Books, Cambridge University Press, number 9780521843195, October.
    3. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    4. Isabelle Huault & V. Perret & S. Charreire-Petit, 2007. "Management," Post-Print halshs-00337676, HAL.
    5. Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 707-727.
    6. 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 637-654, May-June.
    7. 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.
    8. Boyle, Phelim P., 1977. "Options: A Monte Carlo approach," Journal of Financial Economics, Elsevier, vol. 4(3), pages 323-338, May.
    9. Terence C. Mills, 2006. "Introductory Econometrics: Using Monte Carlo Simulation with Microsoft Excel -super-®," Journal of Time Series Analysis, Wiley Blackwell, vol. 27(6), pages 943-944, November.
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    More about this item

    Keywords

    Reálné opce; Real options; Investiční rozhodování; Capital budgeting; Monte Carlo; rezervní kapacita; statistická simulace; Standby Capacity; Statistical Simulation;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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