A FUZZY REAL OPTION VALUATION APPROACH TO CAPITAL BUDGETING UNDER UNCERTAINTY ENVIRONMENT

Shin-Yun Wang () and Cheng Few Lee
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Shin-Yun Wang: Department of Finance, National Dong Hwa University, 1, Sec.2, Da-Hsueh Rd., Shou-Feng, Hualien 974, Taiwan

International Journal of Information Technology & Decision Making (IJITDM), 2010, vol. 09, issue 05, 695-713

Abstract: The information needed for capital budgeting is generally not known with certainty. The sources of uncertainty may be the net cash inflows, the life of the project, or the discount rate. We propose a capital budgeting model under uncertainty environment in which the concept of probability is employed in describing fuzzy events and cash flow information can be specified as a special type of fuzzy numbers. The present worth of each fuzzy project cash flow can be subsequently estimated. At the same time, to select fuzzy projects and determine the optimal decision time under limited capital budget, we offer an example to analyze the results of the capital budgeting problem under uncertainty using a fuzzy real option valuation.

Keywords: Capital budgeting; real option; fuzzy numbers; uncertainty; fuzzy real option valuation (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0219622010004056

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