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A Simulation Approach to Risk Assessment in Investment Analysis

Author

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  • Cassidy, P.A.
  • Rodgers, J.L.
  • McCarthy, W.O.

Abstract

A simulation technique is advanced as a means of determining the probability of achieving various possible financial outcomes when assessing alternative investments. To this end a model is constructed and applied to a proposed investment in pasture improvement. Results are contrasted with a deterministic budget approach. The model uses triangular distributions to derive probabilistic estimates for the stochastic events considered. Possible fields of application of interest to agricultural economists are discussed.

Suggested Citation

  • Cassidy, P.A. & Rodgers, J.L. & McCarthy, W.O., 1970. "A Simulation Approach to Risk Assessment in Investment Analysis," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 38(01), pages 1-22, March.
    • Handle: RePEc:ags:remaae:9614
    DOI: 10.22004/ag.econ.9614
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    References listed on IDEAS

    as
    1. Officer, R.R. & Anderson, Jock R., 1968. "Risk, Uncertainty and Farm Management Decisions," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 36(01), pages 1-17, March.
    2. Lee H. Smith, 1967. "Ranking Procedures and Subjective Probability Distributions," Management Science, INFORMS, vol. 14(4), pages 236-249, December.
    3. Martin B. Solomon, Jr., 1966. "Uncertainty and its Effect on Capital Investment Analysis," Management Science, INFORMS, vol. 12(8), pages 334-339, April.
    4. Paul E. Green, 1967. "Critique of: "Ranking Procedures and Subjective Probability Distributions"," Management Science, INFORMS, vol. 14(4), pages 250-252, December.
    5. Donald G. Morrison, 1967. "Critique of: "Ranking Procedures and Subjective Probability Distributions"," Management Science, INFORMS, vol. 14(4), pages 253-254, December.
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    Cited by:

    1. Hitchens, M.T. & Thampapillai, Dodo J. & Sinden, Jack A., 1978. "The Opportunity Cost Criterion for Land Allocation," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 46(03), pages 1-19, December.
    2. Nelson, A. Gene & Cornelius, James, 1980. "Accuracy Of Past Forecasts And Proposals For Future Aaea Outlook Surveys," 1980 Annual Meeting, July 27-30, Urbana-Champaign, Illinois 278882, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Richardson, James W. & Mapp, Harry P., Jr., 1976. "Use Of Probabilistic Cash Flows In Analyzing Investments Under Conditions Of Risk And Uncertainty," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 8(2), pages 1-6, December.
    4. McClintock, David N. & Ahmadi-Esfahani, Fredoun Z. & Johnston, Jim H., 1991. "A Simulation of the Grain Producers' Decision Problem at Harvest," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 59(03), pages 1-12, December.
    5. Johnston, Jim H., 1975. "Public Policy On Cattle Tick Control In New South Wales," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 43(01), pages 1-37, March.
    6. Robinson, Lindon J., 1981. "A New Development In The Marginal Productivity Theory Of Factor Demand," 1981 Annual Meeting, July 26-29, Clemson, South Carolina 279308, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. Torkamani, Javad, 2006. "Measuring and Incorporating Farmers’ Personal Beliefs and Preferences about Uncertain Events in Decision Analysis: A Stochastic Programming Experiment," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 61(2), pages 1-15.
    8. Mill, Stephen J. & Longworth, John W., 1975. "Stochastic-Computerized-Activity-Budgeting For Sheep Enterprises," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 19(2), pages 1-11, August.
    9. McCarthy, W.O. & Ferguson, D.C. & Cassidy, P.A., 1971. "Sensitivity of Plant Location Solutions to Changes in Raw Product Supplies," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 39(03), pages 1-7, September.

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    Keywords

    Financial Economics; Risk and Uncertainty;

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