跳至主要内容

The Project Valuation with Abandonment and Reset Investment Proportion Applying Real Option Method

Read full paper at:
http://www.scirp.org/journal/PaperInformation.aspx?PaperID=51559#.VG2ns2fHRK0

We discuss the valuation of investment project in a firm applying a real option method with abandonment and reset investment proportion. We take the depreciation value of the facilities and the research and development (R & D) fee into consideration. Our contribution is to derive a pricing model of two-stage optimal decisions allowing abandonment and reset investment proposition. Different from the net present value (NPV) or discount cash flow (DCF), the real option method can efficiently catch the uncertainty in the market, and it can help managers to make the optimal policy for the project. We can improve our method for a multi-stage decision model or a continuous decision model in the further researches.
Cite this paper
Hsiao, Y. and Chen, L. (2014) The Project Valuation with Abandonment and Reset Investment Proportion Applying Real Option Method. Journal of Mathematical Finance, 4, 309-317. doi: 10.4236/jmf.2014.45028. 
 

[1] Robichek, A.A. and Horne, J.C.V. (1967) Abandonment Value and Capital Budgeting. Journal of Finance, 22, 577589.
[2] Dyl, E.A. and Long, H.W. (1969) Abandonment Value and Capital Budgeting: Comment. The Journal of Finance, 24, 88-95.
http://dx.doi.org/10.1111/j.1540-6261.1969.tb00345.x
[3] Hayes, R. and Garvin, D. (1982) Managing as If Tomorrow Mattered. Harvard Business Review, 60, 71-79.
[4] Gray, S. and Whaley, R. (1999) Reset Put Options: Valuation, Risk Characteristics, and an Application. Australian Journal of Management, 24, 1-20.
http://dx.doi.org/10.1177/031289629902400101
[5] Boyle, P.P. and Lau, S.H. (1994) Bumping up against the Barrier with the Binomial Method. Journal of Derivatives, 2, 6-14.
http://dx.doi.org/10.3905/jod.1994.407891
[6] Cheng, W. and Zhang, S. (2000) The Analytics of Reset Options. Journal of Derivatives, 8, 59-71.
http://dx.doi.org/10.3905/jod.2000.319114
[7] Boyle, P.P., Kolkiewicz, A.W. and Tan, K.S. (2001) Valuation of the Reset Options Embedded in Some Equity-Linked Insurance Product. North American Actuarial Journal, 5, 1-18.
http://dx.doi.org/10.1080/10920277.2001.10595994
[8] Kimura, T. and Shinohara, T. (2004) Monte Carlo Analysis of Convertible Bonds with Reset Clauses. European Journal of Operational Research, 168, 301-310.
http://dx.doi.org/10.1016/j.ejor.2004.07.008
[9] Ritchken, P. (1995) On Pricing Barrier Options. Journal of Derivatives, 3, 19-28.
http://dx.doi.org/10.3905/jod.1995.407939
[10] Broadie, M., Glasserman, P. and Kuo, S. (1999) Connecting Discrete and Continuous Path-Dependent Options. Finance and Stochastics, 3, 55-82.
http://dx.doi.org/10.1007/s007800050052
[11] Horfelt, P. (2003) Extension of the Corrected Barrier Approximation by Broadie, Glassman, and Kou. Finance and Stochastics, 7, 231-243.
http://dx.doi.org/10.1007/s007800200077
[12] Ahn, D., Figlewski, S. and Gao, B. (1999) Pricing Discrete Barrier Options with an Adaptive Mesh Model. Journal of Derivatives, 2, 33-44.
http://dx.doi.org/10.3905/jod.1999.319127
[13] Kulatilaka, N. and Perotti, E.C. (1998) Strategic Growth Option. Management Science, 44, 1021-1031.
http://dx.doi.org/10.1287/mnsc.44.8.1021                    eww141120lx
标签：

评论

发表评论

此博客中的热门博文

Does Immigration Promote the Investment of the Monopolistic Firm?

In the present paper, we examine the effect of increasing uncertainty of immigrants’ growth on the optimal timing of investment of a firm that has a monopolistic power over the labor market. It is revealed that when the uncertainty of immigrants’ growth is more than a threshold level, increasing uncertainty of immigrants’ growth accelerates the optimal timing of firms’ investment and enhances the economic growth, even if the uncertainty of immigrants’ growth is formulated by the geometric Brownian motion, which is in sharp contrast to the standard result that an increase in the uncertainty postpones the optimal timing. With an increase in the immigrants over the past ten years, workforces in the host countries have been growing significantly to the extent that the immigrants represent 70% of the increase in the workforce in Europe, and 47% in the United States as OECD indicates. In the present paper, we attempted to investigate the effect of increased uncertainty caused by the growi...
发表评论
阅读全文

Education Policy Implementation: A Mechanism for Enhancing Primary Education Development in Zanzibar

Education is one of the fundamental rights of individuals; therefore, the government of a country needs to develop and strengthen educational policy and quality as well as to ensure that everyone has equal access to basic education. The improvement of access and quality of education in the world is becoming as an essential factor in development, whereas the basic education (primary school), is acknowledged as a foundation of the higher educational development for every country. To fulfill this goal, governments introduce several policies and procedures; however, it requires some reforms and participation from the politician, policymakers, and other stakeholders to re-examine educational policy so that it can lead to multiplication and betterment of the reforms. Educational reforms actually focus on accountability. A positive educational development and reform is very challenging and needs more effort and strategy on how to use and utilize the resources effectively as such it can achie...
发表评论
阅读全文