The Finance of Environmental Investments

Marc Chesney, Jonathan Gheyssens, Anca Claudia Pana and Luca Taschini
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Marc Chesney: University of Zurich
Jonathan Gheyssens: United Nations Environmental Programme Financial Initiative (UNEP FI)
Anca Claudia Pana: University of Zurich

Chapter 6 in Environmental Finance and Investments, 2016, pp 103-158 from Springer

Abstract: Abstract A proper selection and valuation of investment (or disinvestment) projects is crucial for financial managers. This is particularly difficult in the context of risks, globalization of economy, technology changes, strong competition, and in the presence of information asymmetry and environmental constraints. The decision making tool usually recommended by the corporate finance theory is the so called NPV (Net Present Value) approach. This conventional approach, generated by the neo-classical theory, does not fulfill the needs as it ignores the flexibility inherent to the decision making process and the dynamic aspects of project selection. As shown in this chapter, the real options approach provides a new and powerful decision making tool that overcomes the limitations of the traditional DCF (Discount Cash Flow) method, and permits a more appropriate valuation of investment projects related to the environment in particular.

Keywords: Stock Price; Option Price; Real Option; Call Option; Implied Volatility (search for similar items in EconPapers)
Date: 2016
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Chapter: The Finance of Environmental Investments (2013)
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DOI: 10.1007/978-3-662-48175-2_6

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