The Author shows that modelling the uncertain cash flow dynamics of an investment project deserves careful attention in real options valuation. Focusing on the case of commodity price uncertainty, a broad empirical study reveals that, contrary to common assumptions, prices are often non-stationary and exhibit non-normally distributed returns. Subsequently, more realistic stochastic volatility, jump diffusion, and Lévy processes are evaluated in the context of a stylised investment project. The valuation results suggest that stochastic process choice can have substantial implications for valuation results and optimal investment rules.

Contents

• Empirical Analysis of Statistical Commodity Price Properties
• Stochastic Volatility, Jump Diffusion, and Lévy Processes
• Real Options Valuation Using Monte Carlo Simulation and the Longstaff-Schwartz Method Target Groups

• Researchers and students in the field of Finance, Operations Research, and Management

• Professionals in the field of Corporate Finance / Operations Research / Consulting The Author Max Schöne is a Ph.D. student at the WHU - Otto Beisheim School of Management with a research focus on real options valuation and decision making under uncertainty.

  Autorentext
  Max Schöne is a Ph.D. student at the WHU Otto Beisheim School of Management with a research focus on real options valuation and decision making under uncertainty.

  Inhalt
  Empirical Analysis of Statistical Commodity Price Properties.- Stochastic Volatility, Jump Diffusion, and Lévy Processes.- Real Options Valuation Using Monte Carlo Simulation and the Longstaff-Schwartz Method.