Abstract

CRUZ ARANDA, Fernando. Stochastic processes in the valuation of investment projects, real options, binomial trees, bootstrap simulation and Monte Carlo simulation: flexibility in decision making. Contad. Adm [online]. 2012, vol.57, n.2, pp.83-112. ISSN 0186-1042.

This research incorporates stochastic processes in the valuation of investment projects using real options, which is linked to the value of managerial flexibility, that is, to use the option in order to make strategic decisions in line with the company’s economic environment. A project is valued taking into account the real option under which the company has the flexibility to abandon the project if the environment requires it. In the valuation of the project are considered cash fows of the company and bootstrap simulation, historical simulation and Monte Carlo simulation are carried out on them. We analyze and estimate cash fows considering binomial trees to finally determine the real option value and viability of the investment project of the company.

Keywords : Stochastic process; historical simulation; Monte Carlo simulation; investment projects; binomial trees and real options.

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