Real Options Valuation Based on Certainty Equivalents

Ecos de Economía: A Latin American Journal of Applied Economics

Julián Pareja Vasseur¹  Cecilia Maya Ochoa² 

[1] Universidad EAFIT;Operaciones Financieras XM S. A; Universidad EAFIT

关键词: real options;    utility function;    certainty equivalent;    incomplete markets;    CRRA;   

DOI  :  

学科分类：社会科学、人文和艺术（综合）

来源: Universidad Eafit

【 摘 要 】

This purpose of this research is to identify appropriate rates to discount the flows from real options in situations in which the risk-free rate does not apply, in particular, in incomplete markets.  A methodology is proposed for valuing real options based on certainty equivalence, which requires as a principal condition the consideration of preferences represented with utility functions.  A constant relative risk aversion (CRRA) utility function is used to represent these preferences. The results indicate that this methodology adequately reflects how the value of a real option changes in accordance with an investor´s preferences.

【 授权许可】

Unknown