MCDM'13 - paper no. 9

 

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MULTIPLE CRITERIA DECISION MAKING IN THE VALUATION OF REAL OPTIONS

Krzysztof S. Targiel

Abstract:

Traditional project evaluation is based on discounted cash flow method (DCF) with Net Present Value (NPV) as the main measure. This approach sometimes leads to the abandonment of profitable projects, because the DCF method does not take into account the role of managerial flexibility. The Real Options Valuation (ROV) method takes into account future situations in the valuation, assuming that the project is properly managed. The Project Manager shall have the right to take action as appropriate. A widely used method for the valuation of real options is the binomial tree method (CRR), proposed by Cox, Ross and Rubinstein. It takes into account one state variable. In many real problems, however, many factors should be considered. This leads to a multi-criteria decision-making problem. This paper presents an extension of the CRR method for several state variables.

Keywords:

Project management, real options, dynamic programming

Reference index:

Krzysztof S. Targiel, (2013), MULTIPLE CRITERIA DECISION MAKING IN THE VALUATION OF REAL OPTIONS, Multiple Criteria Decision Making (8), pp. 129-142

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Scopus citations in 2 paper(s):
  1. Targiel, K. S. (2015). Dynamic programming in the binomial tree structures for real options analysis. Paper presented at the 6th International Conference on Modeling, Simulation, and Applied Optimization, ICMSAO 2015 - Dedicated to the Memory of Late Ibrahim El-Sadek, doi:10.1109/ICMSAO.2015.7152225
  2. Targiel, K. S., Nowak, M., & Trzaskalik, T. (2018). Scheduling non-critical activities using multicriteria approach. Central European Journal of Operations Research, 26(3), 585-598. doi:10.1007/s10100-018-0542-y