A Fuzzy Pay-off Method for Real Option Valuation
Real 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.
|Date of creation:||Oct 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
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 S., 1990.
"Irreversibility, uncertainty, and investment,"
3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- R. E. Bellman & L. A. Zadeh, 1970. "Decision-Making in a Fuzzy Environment," Management Science, INFORMS, vol. 17(4), pages B141-B164, December.
- Scott Mathews & Vinay Datar & Blake Johnson, 2007. "A Practical Method for Valuing Real Options: The Boeing Approach," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(2), pages 95-104.
- 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, vol. 135(2), pages 303-310, December.
- Boyle, Phelim P., 1977. "Options: A Monte Carlo approach," Journal of Financial Economics, Elsevier, vol. 4(3), pages 323-338, May.
- 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, vol. 7(3), pages 229-263, September.
- 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.
- Yoshida, Yuji, 2003. "The valuation of European options in uncertain environment," European Journal of Operational Research, Elsevier, vol. 145(1), pages 221-229, February.
- 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), vol. 0(1), pages 49-87, May.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:13601. 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: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.