A proposed real options method for assessing investments

Abstract

Real options analysis is being increasingly used for assessing investments under uncertainty; however, traditional real options methods have some characteristics that restrict their use, such as modeling the value of the underlying asset using geometric Brownian motion and assuming a fixed cost in exercising the options. In this paper, another real options method is expounded that mitigates some of the difficulties posed by traditional methods. Another important aspect that we analyzed in this paper is considering the fuzzy aspects of real options theory. In this section, we are trying to use fuzzy logic concepts integrated with system dynamics to assessing real options in investment projects and we examine dynamic versions of fuzzy logic systems. System dynamics (SD) is an effective method for studying dynamic conditions and changes in complex systems. In this paper, a new dynamic model of real-world systems is designed based on the concepts of system dynamic and fuzzy logic approach. The method is explained with an example from aviation. The analysis offers obvious proof that the integrated fuzzy–SD model could help investors to decide how they should choose an investment program, that managers can use the same results to restructure the program to improve the financial feasibility of the project, and that both investors and managers can define minimum needs to ensure program success.

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Correspondence to Abdollah Arasteh.

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Arasteh, A., Aliahmadi, A. A proposed real options method for assessing investments. Int J Adv Manuf Technol 70, 1377–1393 (2014). https://doi.org/10.1007/s00170-013-5390-2

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Keywords

  • Investment analysis
  • Real options (RO)
  • Automobile industry
  • System dynamics
  • Monte Carlo simulation
  • Fuzzy logic