Author: Graham A. DavisPublisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
The opportunity to invest in or abandon a project can in principle be valued using real options techniques. In practice, option pricing has as inputs the volatility and dividend yield of the project, which are in most cases not observable via market data. Current methods of estimating these parameters are largely ad hoc, introducing potential error into the valuation process. This paper uses simple production models to formalize concepts for estimating project volatility and dividend yield in single stochastic variable option models, and provides an example of how these estimates can be used in a real option valuation exercise.
