![]() ![]() Save up to 995 by purchasing three titles at once. Using the variables above, we can easily use the methods used for pricing financial options such as binomial model, Black-Scholes model, and Monte Carlo simulation to price real options. Run real options analysis, Monte Carlo simulation, forecasting, and optimization, coupled with a set of 12 Training DVDs playable on home computers and DVD players. In order to use the techniques for pricing financial options for real options, we should define the relevant variables.Įxpenditure required to acquire asset/Upfront investment was determined using the real options theory, Monte Carlo simulations and. As for example, the option to expand can be viewed as a call option, while the option to abandon can be viewed as a put option. real options analysis, discounted cash flow, mineral project valuation. Some real options behave similarly to calls some behave similarly to puts. However, in a real-life setting, the NPV approach can be hard to perform correctly.įortunately, the pricing of financial options approaches can be applied to price the real options. We will use the option if the NPV is positive and dismiss it if the NPV is negative. For example, for an option to expand the business operation, we can forecast the future cash flows of this project and discount them to the present value at the opportunity cost. The NPV method is the most straightforward approach to real options pricing. Real Options Valuation: a Monte Carlo Simulation Approach Abstract This paper provides a valuation algorithm based on Monte Carlo simulation for valuing a wide set of capital budgeting problems with many embedded real options dependent on many state variables.
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