Application of Real Options on the Decision-Making of Mining Investment Projects Using the System Dynamics Method

This paper presents the use of tools and approaches of system dynamics in the analysis of the efficiency of BIM tools implementation in relation to the management and planning of investments in the construction sector. The dynamic model based on the approach of system dynamics allows to simulate the impact rate (range) of BIM implementation in strategic investment decision-making in the construction sector. Based on the analysis, the key parameters critically affecting the large construction investment projects are determined. The proposed model is implemented as a submodel in the dynamic model designed for potential refinements in the strategic planning of the extent of investments into projects of civil infrastructure of the Czech Republic. The model allows to test different strategies in the virtual world before their implementation. The prediction of future developments based on the proposed model allows to streamline planning and decision-making processes.

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Real Options for the Valuation of Investment Projects

Financial Management and Risk Analysis Strategies for Business Sustainability - Advances in Finance, Accounting, and Economics ◽

10.4018/978-1-7998-7634-2.ch002 ◽

2021 ◽

pp. 20-33

Author(s):

Raisa Pérez-Vas

Keyword(s):

Decision Making ◽

Real Options ◽

Cash Flows ◽

Theoretical Framework ◽

The Real ◽

Investment Projects ◽

High Uncertainty

The objective of this chapter is to analyze the methodology for evaluating investment projects through real options. The limitations of traditional models based on cash flows and the current environment that presents constant changes and high uncertainty have led to a new field of research, real options. The valuation of investment projects carries inherent decision-making, where the best options for the company are analyzed, the real options providing a decision flexibility that classic models do not provide. This chapter contains the most important theoretical framework, where the beginnings of this methodology, the most important types of options, and the methodology for their evaluation are discussed, as well as two practical examples for a better understanding of this methodology.

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Real Options Models for Maintenance Decision Making for Offshore Jacket Platforms

24th International Conference on Offshore Mechanics and Arctic Engineering: Volume 2 ◽

10.1115/omae2005-67476 ◽

2005 ◽

Author(s):

Sandra Santa-Cruz ◽

Ernesto Heredia-Zavoni

Keyword(s):

Decision Making ◽

Real Options ◽

Structural Reliability ◽

Net Present Value ◽

Investment Project ◽

Cash Flows ◽

Point Of View ◽

Investment Projects ◽

Financial Variables ◽

Financial Options

Real options models are currently available as one of the best tools for the assessment of investment projects. This is so mainly due to the capability of the real options models to: (1) account for uncertainties in financial variables that are crucial to the investment project; and (2) quantify the value of the possibility to make a decision on whether to defer, abandon, expand or reduce the project at one or several points along time. Recently, some researchers have proposed the use of real options models for the assessment of infrastructure projects for hydrocarbon exploitation from an economics point of view. The objective of this work is to develop real options models for decision making regarding inspection, maintenance and decommissioning of offshore facilities taking into account the financial and technical aspects of the project. In all cases it is considered that at some point in the future, within the service lifetime of the structure, the decision maker will have an option to carry or not an inspection, and take or not a maintenance or decommissioning action, which will determine the structural and financial performance of the project for its remaining lifetime. The in-service times with no structural failure and the rehabilitation times are modeled as random variables. The cash flows are modeled as stochastic processes considering interruption of operation due to repairs after failure. Analytical expressions are derived for the computation of structural reliability and availability depending upon maintenance actions. An example is given for a jacket platform subjected to fatigue deterioration and damage. Simple and compound options of maintenance and decommissioning options are analyzed. The value of the project is computed by means of an approach similar to that of Black and Scholes for financial options [2]. The results are compared to those obtained under the traditional Net Present Value approach.

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Project portfolio valuation using real options

Financial Analytics Science and Experience ◽

10.24891/fa.13.2.126 ◽

2020 ◽

Vol 13 (2) ◽

pp. 126-146

Author(s):

A.B. Lanchakov ◽

S.A. Filin ◽

A.Zh. Yakushev

Keyword(s):

Real Options ◽

Real Option ◽

Project Portfolio ◽

Risk And Uncertainty ◽

Expected Effect ◽

Investment Projects ◽

Financial Options ◽

Portfolio Efficiency ◽

The Face ◽

Effective Development

Subject. The article analyzes the expected effect of a portfolio of projects in the face of risk and uncertainty, when using real options. Objectives. The purpose is to offer a more objective formula to assess the expected impact of a portfolio of projects for real investment objects under risk and uncertainty, using real options, and provide recommendations for improving the portfolio efficiency. Methods. The study draws on methods of real options and evaluation of investment projects through the real option value, the cash flow discounting method, synthesis, and mathematical modeling. Results. We systematized the main types of real options and developed a formula for calculating the expected effect of project portfolio implementation. The said formula shows that considering the additional long-term costs embedded in a portfolio of real options, which are associated with the use of these real options, and, therefore, reducing the overall risk of projects and the entire portfolio, permit to improve the objectivity of such calculations. Conclusions. When analyzing real options that have real assets as underlying instruments, it is often impossible to apply the computational formulae for financial options, as they differ significantly. The systematization of the main types of real options helps expand the range of application of management solutions. The offered formula enables to improve the efficiency of project insurance under risk and uncertainty and to use additional opportunities for effective development of the company.

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Real options in business valuation and investment

10.29039/0390-9 ◽

2018 ◽

Cited By ~ 1

Author(s):

Андрей Гусев ◽

Andrey Gusev

Keyword(s):

Graduate Students ◽

Real Options ◽

Scientific Publication ◽

Investment Analysis ◽

Investment Activity ◽

Business Valuation ◽

Investment Projects ◽

University Teachers ◽

Specific Calculations

In the presented monograph discusses the major problems associated with the development of methods of investment analysis and application of real options method in the assessment of efficiency of investment projects and valuation of enterprise (business). Disclosed the content of the basic models of evaluation of real options, a classification of real options, the theoretical principles supported by specific calculations. Scientific publication intended for graduate students, University teachers, scientific employees, specializing in the field of management of investment activity of enterprises and business valuation.

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USING REAL OPTIONS IN AN INVESTMENT VALUATION AND DECISION-MAKING PROCESSES

EKONOMIKA I UPRAVLENIE: PROBLEMY, RESHENIYA ◽

10.36871/ek.up.p.r.2020.08.01.006 ◽

2020 ◽

Vol 1 (8) ◽

pp. 43-46

Author(s):

T. T. ADAMIYA ◽

Keyword(s):

Decision Making ◽

Real Options ◽

Financial Management ◽

Significant Risk ◽

Investment Project ◽

Market Uncertainty ◽

Investment Activity ◽

Traditional Assessment ◽

Decision Making Processes ◽

Additional Value

The current stage of global development is characterized by opportunities for investment activity, along with an instability of the economic situation and high uncertainty, dictates the need for investors and managers to make effective decisions, taking into account constantly changing conditions. An investor, while making a decision which project to accept, for the most part, uses the standard methods of financial management as a basis for forecasting and analysis. Considering fast-moving processes of technology change, as well as the conditions of market uncertainty, significant risk and agency problems, the article proposes the use of real options as an insurance (hedging) tool for investors against risks at different stages of the investment project. Risk management can be carried out through real options - the tool of flexibility in decision making. Traditional assessment methods ignore the ability to adapt internal and external changes, however management flexibility can significantly reduce risks, and therefore create additional value.

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