On the usability of real option valuation model types under different types of uncertainty

Mikael Collan*, Tero Haahtela, Kalevi Kyläheiko

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

13 Citations (Scopus)

Abstract

This paper discusses the usability of real option valuation model types under different types of uncertainty. Three types of uncertainty are presented (parametric, structural and procedural), followed by a presentation of six different real option valuation types that are variably suitable for different uncertainties that in turn characterise real world decision-making situations. A usability-based mapping of real option valuation models with each type of uncertainty is made and discussed. Implications concerning decision-making are direct: wrong model selection may lead to unreliable or wrong results and, consequently, poor and often expensive investment decisions.

Original languageEnglish
Pages (from-to)18-37
Number of pages20
JournalINTERNATIONAL JOURNAL OF BUSINESS INNOVATION AND RESEARCH
Volume11
Issue number1
DOIs
Publication statusPublished - 2016
MoE publication typeA1 Journal article-refereed

Keywords

  • Decision-making
  • Financial modelling
  • Real option valuation
  • ROV
  • Uncertainty

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