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

Compound Real Options with Fuzzy Pay-off

Compound real options are combinations of real options, where an exercise of a real option opens another real option. Compound real options are commonly found in a number of industrial projects, but are especially relevant in, e.g., research and development (R&D) where the R&D projects give the real option to research further, or to start the implementation of the results. Valuation of compound options with the most commonly used option valuation methods is often very complex and the methods suffer from a number of problems when used for valuation of real options. This paper discusses the valuation of compound real options with the fuzzy pay-off method for real option valuation and shows that the method reduces complexity of the valuation of compound real options

Comparative analysis on decision making in the case of nuclear power plant development in the Republic of Kazakhstan

학위논문 (석사)-- 서울대학교 대학원 : 공과대학 협동과정 기술경영·경제·정책전공, 2019. 2. Heo, Eunnyeong.카자흐스탄은 우라늄 최대생산국이자 수출국이면서 동시에 구 소련연방국가이기에 원자력산업의 개발에 대한 관심이 크다. 풍부한 우라늄 매장량은 특히 카자흐스탄 정부가 원자력발전에 대한 정책을 지속적으로 논의하여온 대표적인 이유이다. 그러나 원자력발전이 실제로 카자흐스탄에서 개시되기 위해는 많은 제약과 한계를 넘어야 한다. 본 논문은 이러한 배경을 바탕으로 하여, 카자흐스탄에서 원자력 발전을 시작하기 위한 전제조건들이 무엇인지 찾고 또한 찾은 조건들의 중요도를 비교 분석하였다. 분석방법론으로는 복잡한 의사결정구조를 평가하는 분석에 활발히 사용되고 있는 Analytic Hierarchy Process (AHP)를 사용하였다. 본 연구에서는 먼저 관련 문헌을 분석하여 전제조건들을 나열하고, 이들을 전문가설문을 통하여 4개의 중분류 조건과 12개의 세부조건으로 정리하였다. 다음으로, 카자흐스탄 정부 중 실무를 담당하는 에너지부와 재정을 담당하는 투자개발부 소속 공무원들을 대상으로 하여 4개 중분류 조건 및 12개 세부조건들을 대상으로 AHP 분석을 실시하여 이들간의 중요도를 비교 분석하였다. 분석결과, 투자개발부 공무원들은 4개 중분류 중 경제성이 가증 중요도가 높다고 판단한 반면, 에너지부 공무원들은 환경성이 가장 중요하다고 판단하고 있음을 확인할 수 있었다. 두 부처 공무원들 모두 사회정치적 조건들은 중요하지 않다고 판단하였다. 세부 기준 중에는 건설비용과 회수기간 등이 투자개발부 공무원들이 가장 중요하게 생각한 조건인 반면 에너지부 공무원들은 소음과 주민수용성을 들었다. 한편 연구개발이나 효율성 등은 중요도가 낮게 나와 카자흐스탄 정부의 원자력에 대한 태도를 확인할 수 있었다. 주요어 : Analytic Hierarchy Process (AHP), 카자흐스탄, 원자력발전, 정부정책. 학 번 : 2017-29469Despite that almost all former USSR republics refused Soviet nuclear weapons, only Kazakhstan could reap the maximum of reputational benefits from this and make the nuclear-free status a part of its international reputation. Being among largest producers and exporters of uranium in the world, Kazakhstan is directly interested in the development of the nuclear industry. The abundance of uranium resources and the provision of continuous supplies of low-enriched uranium provides an additional incentive for the development of domestic nuclear programs. As a result, the issue of necessity of a nuclear power plant in Kazakhstan is occasionally discussed in the government. In this regard, there are many questions that have to be answered before the construction of the nuclear power plant could begin. This research tries to investigate and rank the assessment criteria and factors that should be taken into account for the construction of a nuclear power plant in Kazakhstan. The methodology of this study consists of two steps: First, a detailed literature review is conducted in order to identify the assessment criteria and sub-criteria for government officials in decision making. The second step covers obtaining opinions from the experts in energy-related area. The collected information is analyzed using Analytic Hierarchy Process (AHP). With the help of the AHP, the weight of each criterion and sub-criterion is calculated. The results show that among all four criteria, the Economic criterion is the most crucial for decision makers from the Ministry for Investments and Development. On the other hand, the Environmental criterion is the most important among decision makers from the Ministry of Energy. The Environmental criterion was assessed by the Ministry for Investments and Development as the least important factor in the construction of a nuclear power plant. Interestingly, both decision making groups did not assess the Socio-Political criterion as an important barrier. Moreover, government officials from the Ministry for Investment and Development believe that Construction cost and Payback period are the most important barriers in the development of a nuclear power plant, however, Social Acceptance and Noise play only an insignificant role in the decision making. In the case of the Ministry of Energy, criteria such as Impact on environment and Land use are the most significant, while Efficiency and R&D were assessed with a low importance. Key words: Analytic Hierarchy Process (AHP), Republic of Kazakhstan, Criteria, Decision making, Nuclear energy, Nuclear power plant. Student number: 2017-29469Abstract iii Contents v List of Tables vii List of Figures viii Chapter 1. Introduction 1 1.1 Overall introduction 1 1.2 Development of energy sector in Kazakhstan 3 1.3 Energy sector in the Republic of Kazakhstan 9 1.4 Purpose of study 16 1.5 Research motivation 21 1.6 Research questions and thesis structure 23 Chapter 2. Literature review and methodology for comparative analysis 25 2.1 Literature review 25 2.2 The Analytic Hierarchy Process 31 2.3 Why the Analytic Hierarchy Process? 34 2.4 Main steps of the AHP 37 2.4.1 Representing the initial problem in the form of a hierarchical structure 37 2.4.2 Pairwise comparison of individual hierarchy component 38 2.4.3 Obtaining normalized matrix 40 2.4.4 Consistency index and consistency ratio 41 Chapter 3. Model and Data 43 3.1 Previous studies 43 3.2 Basic concept of barriers related to the construction of nuclear power plants 50 3.3 Description of criteria 52 3.3.1 Socio-Political criterion 52 3.3.2 Technical criterion 53 3.3.3 Economic criterion 54 3.3.4 Environmental criterion 55 3.4 Consistency test 58 Chapter 4. Results of AHP 65 4.1 Weights of main criteria 65 4.2 Weights of sub criteria within Socio-Political criterion 68 4.3 Weights of sub criteria within Technical criterion 71 4.4 Weights of sub criteria within Economic criterion 73 4.5 Weights of sub criteria within Environmental criterion 75 4.6 Results of Global Priorities 77 4.7 Comparative analysis 81 4.7.1 Ministry for Investments and Development 81 4.7.2 Ministry of Energy 83 4.7.3 Weight of each barrier and analysis of differences between two decision making groups ………..85 Chapter 5. Conclusion 87 5.1 Overall conclusion 88 5.2 Limitations of Study 90 Bibliography 91 Appendix 1: Questionaire 103 Abstract (Korean) 113 Aknowledgement 115Maste

Assessment of Energy Systems Using Extended Fuzzy AHP, Fuzzy VIKOR, and TOPSIS Approaches to Manage Non-Cooperative Opinions

Energy systems planning commonly involves the study of supply and demand of power, forecasting the trends of parameters established on economics and technical criteria of models. Numerous measures are needed for the fulfillment of energy system assessment and the investment plans. The higher energy prices which call for diversification of energy systems and managing the resolution of conflicts are the results of high energy demand for growing economies. Due to some challenging problems of fossil fuels, energy production and distribution from alternative sources are getting more attention. This study aimed to reveal the most proper energy systems in Saudi Arabia for investment. Hence, integrated fuzzy AHP (Analytic Hierarchy Process), fuzzy VIKOR (Vlse Kriterijumska Optimizacija Kompromisno Resenje) and TOPSIS (Technique for Order Preferences by Similarity to Idle Solution) methodologies were employed to determine the most eligible energy systems for investment. Eight alternative energy systems were assessed against nine criteria—power generation capacity, efficiency, storability, safety, air pollution, being depletable, net present value, enhanced local economic development, and government support. Data were collected using the Delphi method, a team of three decision-makers (DMs) was established in a heterogeneous manner with the addition of nine domain experts to carry out the analysis. The fuzzy AHP approach was used for clarifying the weight of criteria and fuzzy VIKOR and TOPSIS were utilized for ordering the alternative energy systems according to their investment priority. On the other hand, sensitivity analysis was carried out to determine the priority of investment for energy systems and comparison of them using the weight of group utility and fuzzy DEA (Data Envelopment Analysis) approaches. The results and findings suggested that solar photovoltaic (PV) is the paramount renewable energy system for investment, according to both fuzzy VIKOR and fuzzy TOPSIS approaches. In this context our findings were compared with other works comprehensively.This research was funded by the Deanship of Scientific Research (DSR) at King Abdulaziz University, Jeddah, under grant no. (RG-7-135-38). The authors, therefore, acknowledge with thanks DSR technical and financial support

Fuzzy real options valuation for oil investments

Traditional valuation methods are less viable under uncertainty. Hence, other methods such as real options valuation models, which can minimize uncertainty, have become more important. In this study, the hybrid approach suggested by Carlsson and Fuller is examined for the case of discrete compounding as this approach better models risky cash flows. A new real options valuation model that will evaluate the investment in a more realistic way is suggested by postponing the defuzzification of parameters in early stages. The suggested model has been applied to the data of an oil field investment and in conclusion the loss of information caused by early‐defuzzification has been determined. Santrauka Tradiciniai vertinimo metodai yra mažiau patikimi esant neapibrėžtumams. Vadinasi, kiti metodai, tokie kaip realių pasirinkčių vertinimo modeliai, kurie gali minimizuoti neapibrėžtumus, tampa svarbesni. Šiame straipsnyje nagrinėjamas hibridinis Carlsson ir Fuller metodas, kuris buvo panaudotas diskrečiajam rizikingų pinigų srautų modeliavimui. Pasiūlytas naujas realių pasirinkčių vertinimo modelis, kuris realistiškiau įvertins investicijas, rodiklius apibūdinančią neapibrėžtą informaciją apdorojant ankstyvojoje stadijoje. Pasiūlytas modelis buvo pritaikytas investicijoms į naftos verslą modeliuoti, nustatytas informacijos nuostolis, kuris atsiranda dėl ankstyvo neapibrėžtų duomenų apdorojimo. First published online: 21 Oct 2010 Reikšminiai žodžiai: neapibrėžtos aibės, realių pasirinkčių vertinimas, neapibrėžtos pasirinktys, investavimas

A fuzzy levelised energy cost method for renewable energy technology assessment

Renewable energy project development is highly complex and success is by no means guaranteed. Decisions are often made with approximate or uncertain information yet the current methods employed by decision-makers do not necessarily accommodate this. Levelised energy costs (LEC) are one such commonly applied measure utilised within the energy industry to assess the viability of potential projects and inform policy. The research proposes a method for achieving this by enhancing the traditional discounting LEC measure with fuzzy set theory. Furthermore, the research develops the fuzzy LEC (F-LEC) methodology to incorporate the cost of financing a project from debt and equity sources. Applied to an example bioenergy project, the research demonstrates the benefit of incorporating fuzziness for project viability, optimal capital structure and key variable sensitivity analysis decision-making. The proposed method contributes by incorporating uncertain and approximate information to the widely utilised LEC measure and by being applicable to a wide range of energy project viability decisions

Distribution network development planning with quality of supply (QOS) costing

Includes bibliographical references.The report outlines details of research in distribution network development with consideration of costs due to quality. Network planning methods are diverse with the common objective of establishing minimum cost options without violating network constraints. The selected network alternative is directed to meet customer requirements. Network planning models have evolved from consideration of simplistic models to multi variable and more realistic approaches. It is not always possible to achieve the desired outcome because planning is a difficult and complex task. There are usually uncertainties due to vague or no information available about the long-term (15-20 years) planning. The uncertainties generally result in risks, which have to be sufficiently analysed before reaching planning decisions. The recently proposed Minimum Risk Criterion is not a preferred risk resolution approach because it suggests that utilities should not establish expensive networks due to cost risk. Uncertainty modeling approaches based on fuzzy logic are proposed as the solution for analysis of uncertain conditions where very limited information is available. Costs in distribution lines are usually due to capital investment and operating costs. Distribution capital costs are primarily due to cost of conductor, s ucture and insulator. The cost of conductor and structure varies with size and type. Insulator costs do not vary significantly with variations in insulator type and properties. Quality related costs are a relatively new concept in distribution costing and are developed in the research. They are primarily due to mitigation, condition monitoring and interruptions. Quality mitigation costs are defined in the mitigation cost models in Figure 4- 8 and Figure 4- 9. The impact cost values in the models were established on the basis of assumptions, which require further research. According to CTLab [12], quality-monitoring equipment costs could vary from R50, 000 to R250, 000. Interruption costs are incurred through penalty cost and revenue losses. The penalty cost is similar to the revenue loss cost in many respects but is incurred when the standard limits are violated. Revenue loss costs are applicable whenever the frequency or voltage deviates from the nominal. It may be preferred to accept revenue losses where mitigation is expensive

Market and Economic Modelling of the Intelligent Grid: End of Year Report 2009

The overall goal of Project 2 has been to provide a comprehensive understanding of the impacts of distributed energy (DG) on the Australian Electricity System. The research team at the UQ Energy Economics and Management Group (EEMG) has constructed a variety of sophisticated models to analyse the various impacts of significant increases in DG. These models stress that the spatial configuration of the grid really matters - this has tended to be neglected in economic discussions of the costs of DG relative to conventional, centralized power generation. The modelling also makes it clear that efficient storage systems will often be critical in solving transient stability problems on the grid as we move to the greater provision of renewable DG. We show that DG can help to defer of transmission investments in certain conditions. The existing grid structure was constructed with different priorities in mind and we show that its replacement can come at a prohibitive cost unless the capability of the local grid to accommodate DG is assessed very carefully.Distributed Generation. Energy Economics, Electricity Markets, Renewable Energy

Real options valuation for South African nuclear waste management using a fuzzy mathematical approach

The feasibility of capital projects in an uncertain world can be determined in several ways. One of these methods is real options valuation which arose from financial option valuation theory. On the other hand fuzzy set theory was developed as a mathematical framework to capture uncertainty in project management. The valuation of real options using fuzzy numbers represents an important refinement to determining capital projects' feasibility using the real options approach. The aim of this study is to determine whether the deferral of the decommissioning time (by a decade) of an electricity-generating nuclear plant in South Africa increases decommissioning costs. Using the fuzzy binomial approach, decommissioning costs increase when decommissioning is postponed by a decade whereas use of the fuzzy Black-Scholes approach yields the opposite result. A python code was developed to assist in the computation of fuzzy binomial trees required in our study and the results of the program are incorporated in this thesis.KMBT_363Adobe Acrobat 9.54 Paper Capture Plug-i