Makhankov, V. G. and AgueroGranados, M. A. (2010): Quantifying Flexibility Real Options Calculus.

PDF
MPRA_paper_24419.pdf Download (445kB)  Preview 
Abstract
We expose a real options theory as a tool for quantifying the value of the operating flexibility of real assets. Additionally, we have pointed out that this theory is an appropriated methodology for determining optimal operating policies, and provide an example of successful application of our approach to power industries, specifically to valuate the power plant of electricity. In particular by increasing the volatility of prices will eventually lead to higher assets values.
Item Type:  MPRA Paper 

Original Title:  Quantifying Flexibility Real Options Calculus 
Language:  English 
Keywords:  real options, BlackScholes Approach, Wiener processes, stochastic processes, Quantifying Flexibility, volatility 
Subjects:  C  Mathematical and Quantitative Methods > C0  General > C02  Mathematical Methods G  Financial Economics > G0  General > G00  General C  Mathematical and Quantitative Methods > C6  Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C60  General C  Mathematical and Quantitative Methods > C0  General > C01  Econometrics 
Item ID:  24419 
Depositing User:  Maximo Aguero 
Date Deposited:  15. Aug 2010 01:45 
Last Modified:  23. Mar 2015 01:38 
References:  1. F. Black, and M. Scholcs.. The pricing of options and corporate liabilities, Journal of Political Economy, 8(1973)637659. 2. K. B. Connolly. Buying and Selling Volatility. Wiley, Chichester, 1999. 3. J.C. Hull. Options, Futures, and other Derivative Securities. Prentice Hall, NJ, 1993. 4. J.C. Cox, S.A. Ross, and M. Rubinstein. Option pricing: A simplified Approach. J.Fin.Econ. 7(1979)229263. 5. W. Margrabe. The value of an option to exchange one asset for another. J.Finance, 33(1978)177 186. 6. S.C. Myers and S. Majd. Abandonment value and project life. Adv.Future & Option Research, 4(1990)121. 7. L. Trigeorgis. Real Options. MIT Press, Cambridge, Mass. 1998. 8. V. Makhankov. Finance Calculus. Markov Processes and Some Mathematical Models of Investment. Lecture Notes, Moscow, 1998, Santa Fe, 2000. 9. T. Copeland and V. Antikarov. Real Options. A Practitionerâ€™s Guide. TEXERE, NY, 2001. 10. J. Cowan. An Introduction to the Mathematical Theory of Option Pricing and Related Topics. Lecture Notes, Santa Fe, Bios, 2000 11. D. Gardner and Y. Xhuang. Valuation of power generation assets: A real option approach. ALGO Research Quarterly. 3(2000)920 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/24419 