A fuzzy expert system for solving real-option decision processes

Carlo Alberto Magni

No 5677, Proyecciones Financieras y Valoración from Master Consultores

Abstract: This paper presents a new approach to real options. The current options-based models have provided new insights into capital-budgeting decisions. Unfortunately they are not widely used by corporate managers and practitioners as they are formally complex, rather difficult to understand and rest on strong implicit assumptions that considerably limit their scope of application. We propose a possible alternative by using a fuzzy expert system, on the basis of Mastroleo, Facchinetti and Magni (2001). We draw up a decision tree with multiple uncertain variables affecting the value of an investment opportunity, consisting of a defer option, a growth option, an abandonment option. Some simulations are conducted to test the economic soundness of the model as well as its consistency with the current models in the literature. A rather refined study can be accomplished by showing how inputs and outputs of the model interrelate one another.

Keywords: fuzzy logic; expert systems; real option (search for similar items in EconPapers)
JEL-codes: C63 C67 G11 G31 (search for similar items in EconPapers)
Pages: 24
Date: 2009-06-19
References: Add references at CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: A Fuzzy expert system for solving ReaL-Option decision processes (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:col:000463:005677

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