Dynamic and complicated circumstances of economic activities, and consequently increase in risks require an efficient analytical method of investment and financing decision making in which does not suffer from traditional methods shortcoming such as stationarity. Real o More
Dynamic and complicated circumstances of economic activities, and consequently increase in risks require an efficient analytical method of investment and financing decision making in which does not suffer from traditional methods shortcoming such as stationarity. Real option analysis developed in response to this requirement.This paper provides a framework to study advantage of using real option theory in evaluating power generation projects in comparison to traditional methods. First, it uses abandon option and its different real option pricing methods, then compares to traditional methods. To compare traditional and real option methods, it uses Monte Carlo simulation.The results show that real option pricing methods do not differ significantly, because when time steps increase, option value increases and all methods converge. Monte Carlo simulation results show that in real option methods risk decreases and return increases in comparison to traditional methods.
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Investors are faced with a wide range of investment options. Considering the growing demand for energy and the limitations of non-renewable resources (RES) , the importance of modeling and evaluating investment in RES has become significant for both investors and policy More
Investors are faced with a wide range of investment options. Considering the growing demand for energy and the limitations of non-renewable resources (RES) , the importance of modeling and evaluating investment in RES has become significant for both investors and policymaker. The purpose of this study is to model and evaluate investment in RES with the aim of attracting investors without delay by determining the optimal level of the RE tariff by applying the Real Option approach (ROA). For modeling, a five-factor set of uncertainty, delay option, climatic differences has been considered and for implementation, a combination of backward dynamic programming algorithm, Monte Carlo simulation and geometric Brownian motion has been used. The results show investing in RES without considering the subsidy is not attractive for investors to investment without delay and then investors and policymakers need to apply ROA to evaluate and invest. The optimal tariff is estimated at an average of 503,000 Rials and the tariff should be adjusted according to the climatic conditions. By technology advancement, Implementation of CO2 trading scheme, the investment value increases and the optimal subsidy is reduced. The optimal subsidy is directly related to tax rate, capacity, exchange rate, discount rate and volatility.
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Real estate investment are characterized by low liquidity and irreversible cost. Real Estate industry is one of the most important industry in occupation. Moreover, its production has the biggest weight in family portfolio.These are important characteristics of real est More
Real estate investment are characterized by low liquidity and irreversible cost. Real Estate industry is one of the most important industry in occupation. Moreover, its production has the biggest weight in family portfolio.These are important characteristics of real estate markets. Real estate industry has cyclical trend. In recession, investor delay their investment. Traditional capital Budgeting models such as Net Present Value are base on fix assumption and condition. They ignore management flexibility. In this paper residential Projects are evaluated with real options (option to delay) by Black-Scholes and Binomial Lattice Model.These model values managerial flexibility. Experimental results show that project Evaluation with real options outperforms the traditional models such as NPV. This paper studies the optimal timing of investment in an irreversible project where the benefits from the project and the investment cost follow continuous- time stochastic processes. According to optimal investment timing proposed by MC Donlad and Siegel, time to start this Project is 9/5 years from now.
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Application of traditional approaches based on Discounting the cash flow in order to evaluate and comparing investment opportunities including Venture Capital in most industries is a very common issue. Due to the lacking deep certainty in this sort of venture, relying o More
Application of traditional approaches based on Discounting the cash flow in order to evaluate and comparing investment opportunities including Venture Capital in most industries is a very common issue. Due to the lacking deep certainty in this sort of venture, relying on traditional approaches could end up with inappropriate decision making, because of ignoring the managerial flexibility. At this study the real option approach in estimated capital budgeting was compared with traditional approach based on Discounting the income. The research hypothesis was that the real option approach could improve the quality of decision making and optimize the investing portfolio from the high risk projects. Accordingly, a venture capital company in the field of pharmaceutical products and medical and therapeutic equipment was chosen for applying the model considering two indicators of the availability and completeness of the financial information of the plans by using the case study approach. The results indicated that considering the value of flexible deciding, the efficacy of the capital budgeting model based on dynamic planning and real options shows more precision than traditional budgeting approach.
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