Lattice Method of Real Option Analysis - Solving the Curse of Dimensionality and Strategic Planning

2007 ◽  
Author(s):  
C. C. Teoh ◽  
G. B. Sheble
Keyword(s):  
Strategic Planning ◽  
Real Option ◽  
Curse Of Dimensionality ◽  
Lattice Method ◽  
Real Option Analysis

scholarly journals Penerapan Real Option Analysis dengan Perubahan Volatilitas dalam Menentukan Nilai Proyek Pertambangan

2017 ◽  
Author(s):  
Novriana Sumarti
Keyword(s):  
Real Option ◽  
Lattice Method ◽  
Market Conditions ◽  
Real Option Analysis ◽  
Project Valuation ◽  
Valuation Method ◽  
Valuation Process ◽  
Silver Mining ◽  
Option Model ◽  
Real Option Method

Author: Dean Andrean, Rio Nur Arifin, Novriana Sumarti AbstrakDalam menghadapi kondisi pasar yang tidak menentu, sebuah perusahaan memerlukan se- buah proses evaluasi nilai proyek yang dapat mengikutsertakan ketidakpastian yang timbul oleh kondisi pasar tersebut, agar perusahaan dapat memaksimalkan keuntungan dan mem- batasi kerugian yang mungkin timbul. Metode Real Option merupakan metode valuasi proyek yang dapat mengandung unsur ketidakpastian dan juga strategi investasi perusahaan pada proyek yang akan dijalankan. Ketidakpastian ini ditandai dengan adanya perubahan nilai proyek dari waktu ke waktu, dimana dalam makalah ini akan dimodelkan oleh Metode Lattice. Salah satu parameter yang diperlukan dalam metode ini adalah volatilitas yang menunjukkan cukup atau kurangnya informasi yang dimiliki mengenai perkembangan nilai proyek tersebut di masa yang akan datang. Makalah ini membahas tentang Real Option menggunakan model trinomial lattice yang dimodifikasi dengan perubahan volatilitas ber- dasarkan Haahtela. Model Real Option dengan perubahan volatilitas tersebut diterapkan pada masalah valuasi nilai proyek pertambangan perak. Hasil analisis menunjukkan nilai proyek yang positif sehingga proyek ini akan menguntungkan untuk dijalankan.Kata kunci: Evaluasi Nilai Proyek, Metode Lattice, Metode Trinomial, Real Option AbstractIn facing uncertain market conditions, a company needs a project value valuation process that may involve uncertainty arising from such market conditions, in order for the company to maximize profits and limit losses that may arise. Real Option method is a method of val- uation of projects that can contain elements of uncertainty and also the company's invest- ment strategy on the project to be run. This uncertainty is marked by the change of project’s value from time to time, which in this paper will be modeled by the lattice Method. One of the parameters required in this method is the volatility indicating sufficient or insufficient information about the development of the project’s value in the future. This paper discusses Real Option using modified trinomial lattice model with volatility changes based on Haahtela. The Real Option model with such volatility changes is applied to the valuation of the value of the silver mining project. The result show positive value of this project so the project is worthed to run.Keywords: Project Valuation Method, Method Lattice, Method Trinomial, Real Option

scholarly journals A real option approach for the valuation of switching output flexibility in residential property investment

2018 ◽  
Vol 23 (2) ◽  
pp. 133-151 ◽  
Author(s):  
Kwabena Mintah ◽  
David Higgins ◽  
Judith Callanan
Keyword(s):  
Real Options ◽  
Real Option ◽  
Economic Value ◽  
Management Tool ◽  
Residential Property ◽  
Option Valuation ◽  
Content Type ◽  
Real Option Analysis ◽  
Real Option Valuation ◽  
Mixed Use

Purpose Uncertainties in residential property investment performance require that real estate assets are designed in a flexible manner to respond to impacts of market dynamics. Though estimating the cost of flexibility is straightforward, assessing the economic value of flexibility is not. The purpose of this study is to explore the potential practical application of real option analysis to determine the economic value of a switching output flexibility embedded in a residential property investment in Australia. The study involves the exploration of an optimal strategy for investment in a residential development through real option analysis and valuation of a mixed use investment. Design/methodology/approach The real option valuation model developed by McDonald and Siegel (1986) is adopted for the evaluation because the switching output flexibility is likened to a perpetual American call option with dividend payout. Findings Through real option analysis, the economic value of switching output flexibility of the mixed use building was determined to be higher than the initial upfront costs. Moreover, a payoff of about $4million was determined to be the value of the switching output flexibility, therefore justifying upfront investments in flexibility as an uncertainty and risk management tool. Practical implications This application is an important demonstration of the practical use of options pricing techniques (real options analysis) and delivers further evidence needed to support the adoption of real option valuation in practice. Flexibility can also enhance risks and uncertainty management in residential property investment better than the adjustment of discount rates. Originality/value There is limited evidence on the use of real options techniques for the valuation of switching output flexibility in practice, and this comes as an original application; both the case study and data are all initial applications of switching flexibility in the Australian property market.

Computational Methods in Environmental and Resource Economics

2019 ◽  
Vol 11 (1) ◽  
pp. 59-82 ◽  
Author(s):  
Yongyang Cai
Keyword(s):  
Computational Methods ◽  
Real Option ◽  
Resource Economics ◽  
Bilevel Optimization ◽  
Curse Of Dimensionality ◽  
Computational Method ◽  
Computational Techniques ◽  
Deterministic Models ◽  
Environmental And Resource Economics ◽  
Dynamic Stochastic

Computational methods are required to solve problems without closed-form solutions in environmental and resource economics. Efficiency, stability, and accuracy are key elements for computational methods. This review discusses state-of-the-art computational methods applied in environmental and resource economics, including optimal control methods for deterministic models, advances in value function iteration and time iteration for general dynamic stochastic problems, nonlinear certainty equivalent approximation, robust decision making, real option analysis, bilevel optimization, solution methods for continuous time problems, and so on. This review also clarifies the so-called curse of dimensionality, and discusses some computational techniques such as approximation methods without the curse of dimensionality and time-dependent approximation domains. Many existing economic models use simplifying and/or unrealistic assumptions with an excuse of computational feasibility, but these assumptions might be able to be relaxed if we choose an efficient computational method discussed in this review.

Sign in / Sign up

Export Citation Format

Share Document