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Application of Rainbow real Options in Project Valuation
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Asgar Noorbakhsh *    , Mahboube Asadi Mafi , Ramin Soltani |
| Department of Financial Management, Faculty of Management and Accounting, Farabi Colleges, University of Tehran |
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Abstract: (110 Views) |
| In order to evaluate projects and investment plans, various criteria are used. In the meantime, the use of real options, especially rainbow real option, for valuating investments and projects owned by companies is one of the methods that, considering uncertainties, can play a dynamic role in decision-making in the field of capital budgeting and lead to optimal decisions in dealing with uncertainties. In this research, by using financial transaction option valuation modeling and its generalization in the field of real options, the valuation of the investment process has been examined based on net present value and Monte Carlo simulation. The results of this research show that the fluctuations in the present value of the project's cash flow are among the determining factors in the value of the project. In order to apply the probability of fluctuations of these factors, unlike the valuation of ordinary real options, this study has tried to apply real option valuation to two-color rainbow options (which is an appropriate method in dealing with a variety of uncertainties). Effectively, it was found that the value of options is affected by fluctuations in the present value of cash flows, which, by changing uncertainty factors, provides significant insights into the optimal timing of investment and clarifies the dominant factor for a type of option. The result of the study shows that investors should prioritize cash outflows when investing in sustainable development projects. |
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| Keywords: Real options, Valuation, Rainbow option, Optimal stop point, Monte Carlo simulation |
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Full-Text [PDF 707 kb]
(11 Downloads)
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Type of Study: Applicable |
Subject:
Special
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