A fuzzy model for sensitivity analysis in real options

Elettra Agliardi, Maria Guerra and Luciano Stefanini ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: This paper adopts a promising concept of uncertainty, incorporating both stochastic processes and fuzzy theory to capture the somewhat vague and imprecise ideas the manager has about the future expected cash flows, the profitability of the project, the costs of the project and many other variables involved in an investment decision. Thus, uncertainty in real option valuation can be faced introducing fuzziness in the fundamental items of the classical approach. In particular, three examples of real options are examined and the computational experiments are performed. It is shown that fuzziness can play the role of a sensitivity analysis of the real option value with respect to the key decisional variables.

Date: 2008-09
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:643

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