METHODS OF REAL OPTIONS VALUATION AND THEIR APPLICATION IN ANALYSIS OF INVESTMENT PROJECTS
Abstract
The article considers various approaches to the valuation of real options, analyzes their advantages and disadvantages in the conditions of the modern economic environment, which will allow for the effective use of these methods in practice to determine the cost and assess the effectiveness of investment decisions. Particular attention is paid to the justification of the advantages of using the Monte Carlo method as a method for assessing real options, which allows taking into account possible scenarios when implementing investment projects and making decisions on strategic investments. There were used among the general scientific research methods, analysis and synthesis methods, which ensured the definition of the essence and classification of real options. An important research tool was the application of the comparison method, which allowed comparing the main financial methods for assessing the cost and effectiveness of investments, namely discounted cash flows and real options. System analysis, in turn, provided the formation of a holistic picture of the possibility of applying methods for assessing the cost of real options in modern economic conditions, in particular, in the specific context of the investment activities of JSC “Ukrzaliznytsia”. For a detailed consideration of the practical aspects of the application of real options valuation methods, special research methods were used, in particular, the empirical method, which made it possible to collect and analyze actual data related to the use of these methods in a real business environment. This allowed for a more in-depth study of the situation of the implementation of one of the infrastructure investment projects of JSC “Ukrzaliznytsia”, which is an important example in the context of strategic investments and their valuation. The results of the study show that the use of real options valuation methods can significantly increase the efficiency of strategic decision-making under uncertainty, since they allow taking into account possible changes in the future that can significantly affect the success of investments. In addition, the Monte Carlo method, as a tool for estimating the price of an option, is extremely useful for calculating the cost of real options for investment projects, allowing not only determining the range of probable efficiency, but also to identify risk factors and contribute to the optimization of the company's investment strategies.
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Pike R., Neale B. (2018) Corporate Finance and Investment: Decisions and Strategies. Pearson.
Schwartz E. S. (2013) The Real Options Approach to Valuation: Challenges and Opportunities. Latin American Journal of Economics, vol. 50, no. 2, pp. 163–177.
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Triantis A. (2005) Realizing the Potential of Real Options: Does Theory Meet Practice? Journal of Applied Corporate Finance, vol. 17, no. 2, pp. 8–16.
Van Putten A. B., MacMillan I. C. (2005) Making Real Options Really Work. Harvard Business Review, vol. 82, no. 12, pp. 134–141.
Wang T. (2005) Real Option «in» Project and System Design identification of Options and Solution for Path Dependency. Cambridge: MIT.
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