Munich Personal RePEc Archive

Real Options: Capital Investment Appraisal; Estimating the Market Price of Risk and Application to the Valuation of a New Business

Rashid, Muhammad Mustafa (2020): Real Options: Capital Investment Appraisal; Estimating the Market Price of Risk and Application to the Valuation of a New Business.

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Abstract

The risk-neutral valuation approach to evaluating an investment avoids the need to estimate risk-adjusted discount rates, but it does require the market price of risk parameters for all stochastic variables. When historical data is available on a particular variable, its market price of risk can be estimated using the capital asset pricing model.

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