Real option valuation methods – Black–Scholes models
Real option valuation methods used in firm valuation process allow taking into consideration firm’s flexibility and its adaptability to environmental changes. The risk is taken into consideration at an expected rate of return in real option – an expected return rate is related to CAPM model. Similarly to return rate of stocks, an expected rate of return µ = ? + ? in real option valuation process. Dividend rate in real option valuation could be interpreted as the cost of delay in project starting (an income that is refused in exchange of the possibility of rejecting a given option). The Black–Scholes model describes the pricing of European call option for share without dividend payment. A standard deviation of yearly return rate of stocks is a risk measure in Black–Scholes model. It is assumed that the variability of stocks is constant during the year. Actually, the variability is changing with time. So, in the paper, it is shown that the variability of stocks at WSE is changing with time and for this reason a short term variability should be taken into account in real option valuation process, i.e., the last 90–180 days. Other models based on the Black–Scholes one that refuse its basic assumptions are also presented.
Volume (Year): 1 (2005)
Issue (Month): ()
|Contact details of provider:|| Web page: http://www.ioz.pwr.wroc.pl/|
More information through EDIRC
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.:
- Pindyck, Robert, 1989.
"Irreversibility, uncertainty, and investment,"
Policy Research Working Paper Series
294, The World Bank.
- Robert S. Pindyck, 1990. "Irreversibility, Uncertainty, and Investment," NBER Working Papers 3307, National Bureau of Economic Research, Inc.
- Pindyck, Robert S., 1990. "Irreversibility, uncertainty, and investment," Working papers 3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
When requesting a correction, please mention this item's handle: RePEc:wut:journl:v:1:y:2005:p:85-95. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Piotr Wawrzynowski)
If references are entirely missing, you can add them using this form.