April 2011
Intermediate to advanced
328 pages
9h 5m
English
Content preview from Risk Analysis in Finance and Insurance, 2nd Edition
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Chapter 6
Implementations of Risk Analysis in
Various Areas of Financial Industry
6.1 Real options: pricing long-term investment projects
Long-term investment projects play a significant role in modern economy.
Development of a new enterprise is a typical example of such a project. A
company that plans an investment of this type is often not obliged to realize
the project. In this sense, such investment activities are similar to a call option
on a financial asset. In both cases an investor has the right to gain some
outcomes of a project in return for invested capital (e.g., buy shares at a
strike price). Such investment programs in “real economy” are referred ...
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