PRACTICABILITY OF BINOMIAL APPROACH IMPLEMENTATION WITHIN METHOD OF REAL OPTION VALUATION
Journal Title: Научно-практический журнал "Проблемы анализа риска" - Year 2016, Vol 13, Issue 4
Abstract
The subject of current research is implication of real option valuation method (ROV) & its usefulness within project evaluation. The attention is paid to investment projects with high level of risk & uncertainty. Comparing aforementioned method with traditional approaches, one can conclude that ROV includes plenty of advantages among which is management flexibility, which serves to control the process of project implementation at each step & helps investors to arrive at the decision whether to continue or abandon the project on its initial stage. Also, ROV allows the application of risk-free rate in DCF model, which significantly increases the terminal value of the project. This becomes possible because ROV considerably decreases the level of risks associated with implementation process, such as uncertainty in choosing the right moment to enter the project & possibility of bearing substantial costs. Results of our research include classification table of real options, substantiation of using risk-free rate in DCF model within ROV method & comparative characteristics of ROV vs traditional approaches. Moreover, we considered limitations of Binomial & Black — Scholes models & proved the practicability of using the Binomial approach (by the example of option to abandon).
Authors and Affiliations
N. F. Efimova, A. I. Dunaeva
Keywords
Related Articles
- EP ID EP611654
- DOI 10.32686/1812-5220-2016-13-4-46-54
- Views 145
- Downloads 0
Effective risk management involves monitoring the system properties of the world
Effective risk management involves monitoring the system properties of the world.
The use of modern technologies in responding to emergencies
The article discusses modern technologies of emergency response to ensure comprehensive safety of citizens.
THE PROBLEMS OF INTERNAL AND EXTERNAL DATA USE FOR OPERATIONAL RISK ASSESSMENT IN COMMERCIAL BANKS
In this paper, authors consider several particular problems regarding data samples for operational risk assessment models calibration. This study analyzes some aspects of data partition into homogeneous groups. It holds...
TYPES OF TAX RISKS IN A COMMERCIAL BANK, AND HOW TO MANAGE THEM
This article investigated types of tax risks made inherent to commercial banks, proposed a generalized concept of building tax risk management in commercial bank. A grouping of types of risks in accordance with the natur...
Reduced fire risk in buildings crowded with people
The article discusses the individual fire risk and how to reduce it. The necessity of creating a system of evacuation of the building in case of fire, which will reduce the risk of fire. The model of foot traffic in the...