Simulation methods in real option valuation

摘要

Simulation is an efficient and versatile method for real option valuation. This paper presents different ways to take advantage of this numerical approach to valuing real investments with managerial flexibility under uncertainty. The methods discussed are classified into three categories: classical methods, simulated pseudo-underlying asset methods and advanced soft computing methods. Each category, with its typical methods and variants, is discussed according to its strengths and shortcomings from the practitioner's point of view, and then a comparison is made between the alternatives according to their usability and technical properties. The purpose is to show both researchers and practitioners the diversity of simulation-based real option valuation methods and what opportunities they provide when chosen to correspond to the valuation cases.