Investment under uncertainty and volatility estimation risk

George Dotsis, Vasiliki Makropoulou and Raphael Markellos

Applied Economics Letters, 2012, vol. 19, issue 2, 133-137

Abstract: This article considers the implications of volatility estimation risk in real options theory. We construct confidence intervals for critical project values and options prices. An empirical example in lease investment evaluation for an offshore petroleum tract shows that confidence intervals can be substantial when a limited amount of data are used to estimate volatility.

Date: 2012
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DOI: 10.1080/13504851.2011.570697

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