Real Options: Capital Investment Appraisal; Estimating the Market Price of Risk and Application to the Valuation of a New Business

Muhammad Mustafa Rashid

MPRA Paper from University Library of Munich, Germany

Abstract: The risk-neutral valuation approach to evaluating an investment avoids the need to estimate risk-adjusted discount rates, but it does require the market price of risk parameters for all stochastic variables. When historical data is available on a particular variable, its market price of risk can be estimated using the capital asset pricing model.

Keywords: Real Options; Capital Investment Appraisal; Market Price of Risk; New Business Valuation; Internet Companies; Amazon (search for similar items in EconPapers)
JEL-codes: G3 G31 G32 M10 N0 N8 N82 (search for similar items in EconPapers)
Date: 2020-03-19, Revised 2020-07-19
New Economics Papers: this item is included in nep-cfn, nep-ore and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:101807

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