Real Options Estimate Using Probabilistic Present Worth Analysis
Year: 2011
Type: article
Abstract: The article presents a method for estimating the value of a real option using probabilistic present worth analysis. The method is shown to capture the upside value of a real option in an equivalent way as—and provide similar results to— the Black-Scholes method. Its strength lies in its intuitive appeal, the avoidance of having to estimate volatility, relaxed assumptions, and the simplicity of the underlying calculations. A comparison with the Black-Scholes method is undertaken in structural terms, with differences noted, and numerically for a range of input parameters. The proposed method is also applicable to evaluating financial options.
Source: The Engineering Economist
Institution: UNSW Sydney
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
OpenAlex ID: W1546028072