Real Options Valuation with Stochastic Interest Rate and Stochastic Volatility
Ramdhan F. Suwarman

Suryakancana University
ramdhan[at]unsur.ac.id

Abstract

Real options are one of the most fascinating research topics in Finance today, since 1977 Stewart C. Myers from the MIT Sloan School of Management published his pioneering article on this subject in the Journal of Financial Economics. Real options are techniques for support capital budgeting decisions which adapting the techniques developed for financial security options. The purpose of using this real option is to capture options contained in projects that cannot be captured by discounted cash flow models that operate as a basic framework for almost all financial analyzes. The real option valuation process will be complemented by interest rate stochastic modeling and volatility stochastic modeling to further capture flexibility and volatility from the existing economic and financial situation. The valuation will be using Monte Carlo simulation with Matlab programming language on crude oil data from the North Sea oil field. The data is obtained from Charlie Grafström and Leo Lundquists thesis with the title "Real Options Valuation vs. DCF Evaluation - An application to a North Sea oilfield ".

Keywords: Real Options, Stochastic Interest Rate, Stochastic Volatility, Monte Carlo Simulations

Topic: Applied Mathematics

Link: https://ifory.id/abstract-plain/HexbMh4qjXwT

Web Format | Corresponding Author (Ramdhan Fazrianto Suwarman)