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Real Options Valuation

The Importance of Interest Rate Modelling in Theory and Practice

  • Marcus Schulmerich

Table of contents

  1. Front Matter
    Pages i-xviii
  2. Marcus Schulmerich
    Pages 1-20
  3. Marcus Schulmerich
    Pages 21-69
  4. Marcus Schulmerich
    Pages 133-195
  5. Marcus Schulmerich
    Pages 363-374
  6. Back Matter
    Pages 375-389

About this book

Introduction

This book analyzes real options valuation for non-constant versus constant interest rates using simulations and historical backtesting. It provides a systematic analysis and compares real options valuation using constant interest rates and the implied forward rates with methods that simulate interest rates stochastically. Real options are investigated and combined with various pricing tools and stochastic term structure models. Interest rates for real options valuation are simulated by using stochastic term structure models (Vasicek, Cox-Ingersoll-Ross, Ho-Lee, and Hull-White one-factor and two-factor models) and by using implied forward rates. All necessary theory is provided in the book. The analyses were conducted using a proprietary computer simulation program. All results are explained in detail and rules are derived for application in Corporate Finance practice. The major change in this second edition is the expanded number of tested scenarios. The second edition contains an expanded number of tested scenarios covering the time period of the financial crisis 2008, one of the worst stock market crashes in history. The findings confirm the results provided in the first edition.

Keywords

Corporate Finance Finance Implied Forward Rates Monte Carlo Simulation Options Real Options Stochastic Interest Rate Models Stock market Valuation

Authors and affiliations

  • Marcus Schulmerich
    • 1
  1. 1.State Street Global Advisors (SSgA)Vice PresidentMünchenGermany

Bibliographic information

  • DOI https://doi.org/10.1007/978-3-642-12662-8
  • Copyright Information Springer-Verlag Berlin Heidelberg 2010
  • Publisher Name Springer, Berlin, Heidelberg
  • eBook Packages Business and Economics
  • Print ISBN 978-3-642-12661-1
  • Online ISBN 978-3-642-12662-8
  • Buy this book on publisher's site