Regression sensitivity analysis for cash flow simulation based real option valuation

摘要

Sensitivity analysis on financial options considers how the solution changes because of a change in one of the key parameters (underlying asset value, volatility, exercise price, interest rate, time to maturity, dividends). In case of real option valuation with cash flow simulation, however, these are mostly indirect variables which are computed based on the uncertain direct variables – e.g. demand, unit selling price, and unit costs - in the cash flow calculation. The method presented detects the most significant primary variables, and based on this analysis, shows how changes in the direct uncertainties can be used to estimate with the response surface method the simultaneous changes in the indirect parameters defining the underlying asset process and thus the real option value.