New Method for Real Option Valuation Using Fuzzy Numbers

Real option 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 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.Real Options, Fuzzy Numbers, New Method

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.Real Option Valuation; Fuzzy Real Options; Fuzzy Numbers

NEW ASPECTS REGARDING THE EVALUATION OF INVESTMENTS IN CRITICAL INFRASTRUCTURE

The additional risks associated to the actual global and contagious crisis put a severe pressure on the investments in critical infrastructure and there is a real need for new valuations especially those regarding the synergic financing strategies in critsynergic investments, critical infrastructure, real options valuation (ROV)

Internet of Things and Their Coming Perspectives: A Real Options Approach

Internet of things is developing at a dizzying rate, and companies are forced to implement it in order to maintain their operational efficiency. The high flexibility inherent to these technologies makes it necessary to apply an appropriate measure, which properly assesses risks and rewards. Real options methodology is available as a tool which fits the conditions, both economic and strategic, under which investment in internet of things technologies is developed. The contribution of this paper is twofold. On the one hand, it offers an adequate tool to assess the strategic value of investment in internet of things technologies. On the other hand, it tries to raise awareness among managers of internet of things technologies because of their potential to contribute to economic and social progress. The results of the research described in this paper highlight the importance of taking action as quickly as possible if companies want to obtain the best possible performance. In order to enhance the understanding of internet of things technologies investment, this paper provides a methodology to assess the implementation of internet of things technologies by using the real options approach; in particular, the option to expand has been proposed for use in the decision-making process

Fuzzy Real Investment Valuation Model for Giga-Investments, and a Note on Giga-Investment Lifecycle and Valuation

Very large industrial real investments are different from financial investments and from small real investments, even so, their profitability is commonly valued with the same methods. A definition of a group of very large industrial real investments is made, by requiring three common characteristics. The decision support needs arising from these characteristics are discussed and a summary of existing methods to value and to provide decision support for large industrial investments is presented. A model built specifically to support investment decisions of very large industrial real investments and a numerical application of the model are presented. The model is discussed and commented. A note is made on an observation regarding the giga-investment lifecycle and its effect on giga-investment valuation.Large industrial investments; Profitability analysis; Fuzzy corporate finance; Capital Budgeting

Application of the American Real Flexible Switch Options Methodology A Generalized Approach

The paper deals with the inclusion of flexibility in financial decision-making under risk. It describes the application of the real options methodology with the possibility of sequential multinomial decision-making. The basic intention is to describe and apply a generalized approach and methodology of the flexibility modeling and valuation based on multiple choices and non-symmetrical switching costs under risk. The stochastic dynamic Bellman optimization principle is explained and applied. The optimization criterion of the present expected value is derived and used. Likewise, an option valuation approach based on replication strategy and risk-neutral probability is applied. An illustrative example of the application of the real multinomial flexible non-symmetrical switch options methodology is presented for three chosen modes. The option flexible values are computed. The usefulness, effectiveness, and suitability of applying the generalized flexibility model in company valuation and project evaluation is verified and confirmed. The significance of applying the generalized methodology in transition market economies is discussed and verified.financial options; real options; Discrete Binomial Model; pricing; stochastic dynamic Bellman Optimization Principle; switch options

A fuzzy real option approach for investment project valuation

[[abstract]]The main purpose of this paper is to propose a fuzzy approach for investment project valuation in uncertain environments from the aspect of real options. The traditional approaches to project valuation are based on discounted cash flows (DCF) analysis which provides measures like net present value (NPV) and internal rate of return (IRR). However, DCF-based approaches exhibit two major pitfalls. One is that DCF parameters such as cash flows cannot be estimated precisely in the uncertain decision making environments. The other one is that the values of managerial flexibilities in investment projects cannot be exactly revealed through DCF analysis. Both of them would entail improper results on strategic investment projects valuation. Therefore, this paper proposes a fuzzy binomial approach that can be used in project valuation under uncertainty. The proposed approach also reveals the value of flexibilities embedded in the project. Furthermore, this paper provides a method to compute the mean value of a project’s fuzzy expanded NPV that represents the entire value of project. Finally, we use the approach to practically evaluate a project.[[incitationindex]]SCI[[booktype]]紙

American option pricing with imprecise risk neutral probabilities: from plain intervals to fuzzy sets

The aim f this paper is to price an American style option when there is uncertainty on the underlying asset volatility