Many important risky projects are characterized by stochastic processes embedded in non-linear, feedback structures with delays. System dynamics models may be used to estimate the cash flow resulting from these projects. If these projects include managerial flexibility (real options), a correct financial evaluation of these cash flow requires the use of real options methodology. We adapt prior work on real options valuation in the decision analysis literature to develop a methodology that avoids the need to estimate a risk-adjusted discount rate for the project with options. We illustrate this approach with a model drawn from the wind power industry, which is characterized by numerous uncertainties and high managerial flexibility. We conclude with a discussion comparing this methodology to the previous methods and describe under what conditions each one might be a more appropriate choice.

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Date created

• 2009 July 26-2009 July 30

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• Document

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• Processing documentation available at: https://wiki.albany.edu/display/SCA/Processing+Ingested+Digital+Files

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• Creative Commons BY-NC-ND Attribution-NonCommercial-NoDerivs 4.0 International

  
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ITEM CONTEXT

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Papers, 2009 July 26-2009 July 30

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Part of

Albuquerque, NM, USA, 2009 July 26-2009 July 30

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Part of

Conferences, 1976 - 2018

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Collection

System Dynamic Society Records

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Collecting area

• This collection is part of the University Archives