DGM for real options valuation: Options to change operating scale

Hozman, Jiří, and Tichý, Tomáš. "DGM for real options valuation: Options to change operating scale." Programs and Algorithms of Numerical Mathematics. Prague: Institute of Mathematics CAS, 2023. 75-84. <http://eudml.org/doc/299025>.

@inProceedings{Hozman2023,
abstract = {The real options approach interprets a flexibility value, embedded in a project, as an option premium. The object of interest is to valuate real options to change operating scale, typical for natural resources industry. The evolution of the project as well as option prices is decribed by partial differential equations of the Black-Scholes type, linked through a payoff function given by a type of the flexibility provided. The governing equations are discretized by the discontinuous Galerkin method over a finite element mesh and they are integrated in temporal variable by an implicit Euler scheme. The special attention is paid to the treatment of early exercise feature that is handled by additional penalty term. The capabilities of the approach presented are documented on the selected individual real options from the reference experiments using real market data.},
author = {Hozman, Jiří, Tichý, Tomáš},
booktitle = {Programs and Algorithms of Numerical Mathematics},
keywords = {real option; option pricing; American option; partial differential equation; discontinuous Galerkin method; penalty method},
location = {Prague},
pages = {75-84},
publisher = {Institute of Mathematics CAS},
title = {DGM for real options valuation: Options to change operating scale},
url = {http://eudml.org/doc/299025},
year = {2023},
}

TY - CLSWK
AU - Hozman, Jiří
AU - Tichý, Tomáš
TI - DGM for real options valuation: Options to change operating scale
T2 - Programs and Algorithms of Numerical Mathematics
PY - 2023
CY - Prague
PB - Institute of Mathematics CAS
SP - 75
EP - 84
AB - The real options approach interprets a flexibility value, embedded in a project, as an option premium. The object of interest is to valuate real options to change operating scale, typical for natural resources industry. The evolution of the project as well as option prices is decribed by partial differential equations of the Black-Scholes type, linked through a payoff function given by a type of the flexibility provided. The governing equations are discretized by the discontinuous Galerkin method over a finite element mesh and they are integrated in temporal variable by an implicit Euler scheme. The special attention is paid to the treatment of early exercise feature that is handled by additional penalty term. The capabilities of the approach presented are documented on the selected individual real options from the reference experiments using real market data.
KW - real option; option pricing; American option; partial differential equation; discontinuous Galerkin method; penalty method
UR - http://eudml.org/doc/299025
ER -