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Quantifying Flexibility Real Options Calculus

Author

Listed:
  • Makhankov, V. G.
  • Aguero-Granados, M. A.

Abstract

We expose a real options theory as a tool for quantifying the value of the operating flexibility of real assets. Additionally, we have pointed out that this theory is an appropriated methodology for determining optimal operating policies, and provide an example of successful application of our approach to power industries, specifically to valuate the power plant of electricity. In particular by increasing the volatility of prices will eventually lead to higher assets values.

Suggested Citation

  • Makhankov, V. G. & Aguero-Granados, M. A., 2010. "Quantifying Flexibility Real Options Calculus," MPRA Paper 29795, University Library of Munich, Germany, revised 22 Mar 2011.
    • Handle: RePEc:pra:mprapa:29795
    as

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    File URL: https://mpra.ub.uni-muenchen.de/29795/2/MPRA_paper_29795.pdf
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    References listed on IDEAS

    as
    1. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    2. Margrabe, William, 1978. "The Value of an Option to Exchange One Asset for Another," Journal of Finance, American Finance Association, vol. 33(1), pages 177-186, March.
    3. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    real options; Black-Scholes Approach; Wiener processes; stochastic processes; Quantifying Flexibility; volatility;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • G00 - Financial Economics - - General - - - General
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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