scholarly journals Investments in Pinus elliottii Engelm. Plantations: Real Options Analysis in Discrete Time

Forests ◽  
2022 ◽  
Vol 13 (1) ◽  
pp. 111
Author(s):  
Jorge Carvalho Martins ◽  
Richardson Barbosa Gomes da Silva ◽  
Rafaele Almeida Munis ◽  
Danilo Simões
Keyword(s):  
Real Options ◽  
Investment Project ◽  
Planning Horizon ◽  
Pinus Elliottii ◽  
Plantation Forest ◽  
Financial Evaluation ◽  
Real Options Analysis ◽  
The Real ◽  
Investment Projects ◽  
Pinus Spp

Background: The commonly used methods for the financial evaluation of plantation forest investment projects do not incorporate uncertainties and ignore the value related to flexibility. The real options analysis makes it possible to capture these values in investment projects, increasing their value and return. Despite this, studies involving real options in forest investment projects are scarce, specifically those related to Pinus spp. Therefore, this study aimed to: (a) analyze whether the real options analysis adds value to investment projects of Pinus elliottii Engelm. plantations; and (b) make the real options analysis more accessible to forest managers and potentially increase its use in the investment projects of Pinus spp. plantations. Methods: We evaluated two investment projects in P. elliottii plantations in southern Brazil, which differed in the way of obtaining the land for planting: with lease or purchase of land on a planning horizon of 21 years. In the real options analysis, we used deferral, expansion, and abandonment. Results: Individually, the deferral, expansion, and abandonment options add value to investment projects in Pinus elliottii plantations. The option to expand the forested area is one that adds the most value to the investment project with land lease. In the investment project with land purchase, it is abandonment. Conclusions: Investment projects in Pinus elliotti plantations that contemplate the land purchase analyzed through the real options analysis present higher financial returns than those that consider land lease, inverting the result provided by the traditional analysis.

Real Options Framework for Dealing with Uncertainty in Project Management: A Moroccan Infrastructure Project

2019 ◽  
Vol 01 (01) ◽  
Author(s):  
Jihane Gharib ◽  
Abdelaziz Berrado ◽  
Loubna Benabbou
Keyword(s):  
Real Options ◽  
Investment Project ◽  
Future Market ◽  
Decision Analysis Model ◽  
Business Managers ◽  
Analysis Model ◽  
The Real ◽  
Investment Projects ◽  
Real Options Valuation ◽  
Infrastructure Project

The Real Options Valuation allows for the consideration of possible options that are instinctively embedded in investment projects, in which the decision-makers have the flexibility to respond to the outcome of uncertainty. The business managers’ abilities to react to future market conditions tend to impact the value of the investment project by maintaining or improving the upside potential and limiting the downside loss. This process must be regulated by a decision analysis model, capable of capturing the particularities of each project. This paper presents detailed literature review of the real options, includes their area of applications in the literature, then proposes a framework to ease the understanding and the use of this method. Later, a case study of a Moroccan infrastructure project, that had already undergone an evaluation, is outlaid. The paper fully addresses the gaps of the previous study, provides a corrected model for an improved valuation of this project and a suitable use of real options. It also illustrates its application and analyzes the obtained results.

scholarly journals Real options analysis in the engineering company practice

2013 ◽  
Vol 61 (7) ◽  
pp. 2303-2309
Author(s):  
Václav Klepáč ◽  
Petr Kříž ◽  
David Hampel
Keyword(s):  
Monte Carlo ◽  
Monte Carlo Simulations ◽  
Real Options ◽  
Net Present Value ◽  
Simulation Software ◽  
Real Options Analysis ◽  
The Real ◽  
Investment Projects ◽  
Research Problems ◽  
Path Dependent

In this paper, we deal with the real options analysis of selected investment projects. This approach is supplemented and compared to calculations of the net present value (NPV). Two research problems are analyzed: acquisition of the simulation software for the foundry industry in the sense of the expansive options and options on leaving the project in the case of acquisition of the spectrometer. For the option valuation, there were used analytical and numerical methods like the Black-Scholes model, binomial model and Monte Carlo simulations. In the case of binomial pricing model we used modification describing the behavior of the project’s cash-flow (CF) due to capacity of the company, path-dependent addiction and embedded option barrier. To extend the application of the real options analysis, we propose procedures for sensitivity analysis and option pricing based on Monte Carlo simulations for particular case of stochastic volatility.

scholarly journals Valuation of Wind Energy Turbines Using Volatility of Wind and Price

2021 ◽  
Author(s):  
Doron Greenberg ◽  
Michael Byalsky ◽  
Asher Yahalom
Keyword(s):  
Wind Energy ◽  
Real Options ◽  
Net Present Value ◽  
Discounted Cash Flow ◽  
Energy Investment ◽  
Real Options Analysis ◽  
The Real ◽  
Investment Projects ◽  
Managerial Flexibility ◽  
Renewable Energy Investment

The limitedness of the nonrenewable local energy resources in Israel, even in background of the later gas fields’ findings, continues to force the state to devote various efforts for the ‘green’ energy development. These efforts include installations both in the solar and in the wind energy, with a purpose to improve the diversity of energy sources. While the standard discounted cash flow (DCF) method using the net present value (NPV) criterion is extensively adopted to evaluate investments, the standard DCF method is inappropriate for the rapidly changing investment climate and for the managerial flexibility in investment decisions. In recent years, the real options analysis (ROA) technique is widely applied in many studies for valuation of renewable energy investment projects. Hence, we apply in this study the real options analysis approach for the valuation of wind energy turbines and apply it to the analysis of wind energy economic potential in Israel.

One Method to Identify the Real Options in the Investment Project

2019 ◽  
Vol 8 (3) ◽  
pp. 35-44
Author(s):  
Inas Nadrus ◽  
Valery Anshin ◽  
Igor Demkin
Keyword(s):  
Real Options ◽  
Present Article ◽  
Oil And Gas ◽  
Investment Project ◽  
Oil And Gas Industry ◽  
Specific Nature ◽  
Gas Industry ◽  
Investment Projects ◽  
Multiple Case ◽  
Multiple Case Studies

The present article describes a research that examines the sources of flexibility in the investment projects in the oil and gas industry using multiple case studies of several oil and gas projects. More precisely, the study is concerned with revealing uncertainties that give rise to real options. Ultimately, the methodology for real options identification in the exploration & development type of investment projects of the oil and gas industry is proposed. It is anticipated that the results might help to bring certain improvements into the existing managerial conception of using real options for investment project evaluation considering the specific nature of investment projects in the oil and gas industry.

scholarly journals COMPARATIVE ANALYSIS OF THE DISCOUNTED FLOW METHOD AND THE REAL OPTIONS METHOD AS APPROACHES TO THE EVALUATION OF INVESTMENT PROJECTS

2021 ◽  
Vol 1 (№7 2021) ◽  
pp. 78-82
Author(s):  
А.С. Тяпкина ◽  
N.D. Komova ◽  
А.В. Лихвойнен ◽  
В.I. Юхимец ◽  
V.S. Alexandrova
Keyword(s):  
Comparative Analysis ◽  
Real Options ◽  
The Real ◽  
Investment Projects ◽  
Flow Method

scholarly journals Method of Real Options in Managing Investment Projects

2019 ◽  
Vol 8 (10) ◽  
pp. 2696-2699
Keyword(s):  
Project Management ◽  
Real Options ◽  
Service Level ◽  
Management Service ◽  
Strategic Decisions ◽  
The Real ◽  
Investment Projects ◽  
Efficient Management ◽  
Service Level Management ◽  
Key Factor

A key factor for the success of the project management is the availability of a clear pre-defined plan, minimizing risks and deviations from the plan, efficient management of changes (as opposed to process, functional management, service level management). Using the binomial method to estimate the value of real options, they proceed from the assumption that the number of links is discrete and known in advance. The logic of this approach requires that their number corresponding to the frequency of making the most significant decisions for the project. The nodes of the lattice should be those moments in time in which strategic decisions are made on reducing, developing, switching business, etc. In general, the use of the real options method extends the tools to justify decisions in managing investment projects.

Real Options for the Valuation of Investment Projects

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.

The Value of Flexibility at Global Airlines: Real Options for EDW and CRM

2017 ◽  
pp. 1-18
Author(s):  
Mark Jeffery ◽  
Chris Rzymski ◽  
Sandeep Shah ◽  
Robert J. Sweeney
Keyword(s):  
Monte Carlo ◽  
Real Options ◽  
Real Option ◽  
Monte Carlo Analysis ◽  
Active Management ◽  
Growth Options ◽  
Option Value ◽  
Real Options Analysis ◽  
The Real ◽  
Real Option Value

Technology projects are inherently risky; research shows that large IT projects succeed as originally planned only 28 percent of the time. Building flexibility, or real options, into a project can help manage this risk. Furthermore, the management flexibility of options has value, as the downside risk is reduced and the upside is increased. The case is based upon real options analysis for an enterprise data warehouse (EDW) and analytic customer relationship management (CRM) program at a major U.S. firm. The firm has been disguised as Global Airlines for confidentiality reasons. The data mart consolidation or EDW marginally meets the hurdle rate for the firm as analyzed using a traditional net present value (NPV) analysis. However, different tactical deployment strategies help mitigate the risk of the project by building options into the project, and the traditional NPV is expanded by the real option value. Students analyze the different deployment strategies using a binomial model compound option Excel macro, and calculate the volatility using Monte Carlo analysis in Excel. A step-by-step tutorial is provided to teach students how to accomplish the real options analysis for a simplified project, and this tutorial is easily generalized by students to the case scenario. In addition to the tactical options, the case also has the strategic growth option of analytic CRM. Students must therefore analyze both the tactical and strategic growth options and make a management recommendation on funding the project and also recommend an optimal deployment strategy to manage the project risk.The case teaches real options for technology projects. Students learn how to calculate real option values, where the key input of volatility is obtained by Monte Carlo analysis in Excel. Students also learn that the real option value is “real,” resulting from active management mitigating the risk of the project and improving the upside. Most important, students understand the difference between tactical vs. strategic growth options and the important management issues to consider.

Valuing Research Investment Projects Based on Discrete Time Model: A Real Options Approach

2014 ◽  
Vol 926-930 ◽  
pp. 4073-4076 ◽  
Author(s):  
Yong Gang Xue ◽  
Ming Li Zhang
Keyword(s):  
Real Options ◽  
Real Option ◽  
Investment Decision ◽  
Substantial Effect ◽  
Time Model ◽  
The Real ◽  
Investment Projects ◽  
Real Option Theory ◽  
Real Option Approach ◽  
Option Theory

The methodology is proposed to value a project based on real options model firstly. Then the BOPM is used to value a project and the empirical results are compared with the results which are based on NPV approach. The results favor the application of the real option theory and show that the option value have important role on investment decision. The results show that the real option approach is more rational than the traditional NPV approach in valuing project because the uncertainty is considered in real option approach. The uncertainty with respect to project return has a substantial effect on investment decision, which is only explained by the option theory.

scholarly journals Valuing a natural gas pipeline expansion project: A copula-TGARCH application in Mexico

2018 ◽  
Vol 64 (2) ◽  
pp. 95
Author(s):  
Ricardo Massa Roldan ◽  
Montserrat Reyna Miranda
Keyword(s):  
Natural Gas ◽  
Real Options ◽  
Net Present Value ◽  
Joint Effect ◽  
Gas Pipeline ◽  
Energy Prices ◽  
Present Value ◽  
The Real ◽  
Investment Projects ◽  
The Individual

<p>With the liberalization of energy prices and the opening of the energy sector to competitors in Mexico, an opportunity for new investment projects is now open. Due to the current conditions of international energy markets, such as volatility and low prices with no prospect of reversion, a need for valuation tools to better capture the risk and benefits of a project presents itself. We propose a methodology based on the volatility treatment of numerous underlying assets in a Real Options Analysis: using a TGARCH for the individual volatilities and copulas for the joint effect. The methodology is applied to a natural gas distribution project of Mexico’s State oil company Petróleos Mexicanos (PEMEX). An estimated net present value of the gas pipeline is provided, considering the real options perspective. The result of our empirical application validates the real option’s theory of a higher net present value estimation for the project when incorporating the effect of different sources of uncertainty and non-linear interdependence.</p>

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