Real Options Valuation

1. Front Matter

   Pages I-XIV

   PDF

2. Introduction

   • Max Schöne

   Pages 1-5

3. Data

   • Max Schöne

   Pages 6-8

4. Empirical analysis

   • Max Schöne

   Pages 9-39

5. Modelling commodity prices

   • Max Schöne

   Pages 40-66

6. Capital budgeting implications

   • Max Schöne

   Pages 67-75

7. Conclusion

   • Max Schöne

   Pages 76-77

8. Back Matter

   Pages 79-104

   PDF

The Author shows that modelling the uncertain cash flow dynamics of an investment project deserves careful attention in real options valuation. Focusing on the case of commodity price uncertainty, a broad empirical study reveals that, contrary to common assumptions, prices are often non-stationary and exhibit non-normally distributed returns. Subsequently, more realistic stochastic volatility, jump diffusion, and Lévy processes are evaluated in the context of a stylised investment project. The valuation results suggest that stochastic process choice can have substantial implications for valuation results and optimal investment rules.

• Commodity price modelling
• Commodity price modelling
• Corporate Finance
• Monte Carlo Simulation
• Real options valuation

• WHU Otto Beisheim School of Management, Vallendar, Germany

  Max Schöne

Max Schöne is a Ph.D. student at the WHU – Otto Beisheim School of Management with a research focus on real options valuation and decision making under uncertainty.

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