On application of option pricing theory to engineering economic decisions under uncertainty.

摘要

The primary objective of this research is to study how option pricing theory can be applied to engineering economic decisions. The net present value (NPV) criterion is often used indiscriminately to analyze investments under both deterministic and uncertain cash flow assumptions. It works perfectly under deterministic conditions but fails to capture the value of strategic flexibility that is important to pragmatic decision making. An emerging area of research in capital budgeting is the application of option pricing theory to analyze investment in real assets under uncertainty.; Real option research is relatively new to the engineering economic community, although some work has already been done by financial economists. This research presents a summary of the work that has already been done in addition to identifying potential non overlapping research areas to augment the work done by financial economists. It also presents basic option theory concepts that are required to understand how option theory can be applied to real investments. The survey findings indicate that financial economists have paid relatively less attention to applying option pricing techniques to valuing R & D projects. In an attempt to fill this deficiency, a model based on the risk-less arbitrage pricing to value R & D investments is developed. The model is illustrated using a real world R & D case study. This research introduces the concept of linking real investment valuation with stock price that enables a decision maker to integrate corporate strategy with project valuation.; The real option models developed by financial economists have been based mostly on the risk-less arbitrate pricing condition. Models that are based on risk-less arbitrage pricing require a set of restrictive assumptions, which are not always applicable to value options involving real investments. The research study thus discusses non arbitrage valuation using linear payoff analysis. The Bayesian approach is found to be an effective method to analyze investments under uncertainty when there is an opportunity to replicate. An alternate real option valuation approach using linear payoff analysis and Bayesian methods is discussed. In particular, the research examines how one can take advantage of information to value real options when there is an opportunity to replicate. This alternate valuation is useful as capital budgeting decisions are often complex.; This research introduces a simple concept using the value of information and sequential option revisions as a decision making criterion under uncertainty. Using a typical example related to sequential automation this research illustrates how one can use the option revision idea to make investment decisions under uncertainty. Finally, this research demonstrates that option pricing techniques have the potential to advance the field of engineering economics and thus opens up a challenging area of research.