Flexibility modeling of investment projects with computer implementation

Jiří Fotr, Stanislav Hájek and Hana Scholleová

Ekonomika a Management, 2008, vol. 2008, issue 3

Abstract: Investment decision making is very important for firm growth. The classical quantitative methods (NPV, IRR…) don´t involve value of the firm option of flexible reaction to continuously changing conditions and take advantage of them. This deficiency eliminates the using of the real options methods that have been built on analogy between finance and real options. The typical real options that are frequently used in flexible firm investment projects are primarily option to wait, option to expansion, option to contract or option to defer the project. Using the analogy with finance options it is possible to valuate the firm flexibility included in the project in STRATEX. We can use either the binomial or Black-Scholes model. It is possible to implement the sensitive analysis for all inputs.

Keywords: Reálné opce; Real options; Investment decision making; Investiční rozhodování; STRATEX (search for similar items in EconPapers)
JEL-codes: G30 (search for similar items in EconPapers)
Date: 2008
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