Research Article
BibTex RIS Cite
Year 2017, Volume: 6 Issue: 1, 19 - 23, 30.12.2017
https://doi.org/10.17261/Pressacademia.2017.739

Abstract

References

  • Aranda, F., C., Arango, F., O., Lianos, A., I., C., 2016, Project Valuation of a Distribution Centre of an Auxiliary Rail Freight Terminal: Using Real Options with Fuzzy Logic and Binomial Trees, Journal of Applied Economic Sciences,11, 894-904.
  • Biancardi, M., Villani, G., 2017, A fuzzy approach for R&D compound option valuation, Fuzzy Sets and Systems, 310, 108-121.
  • Black, F., Scholes, M., 1973, The pricing of options and corporate liabilities, Journal of Political Economy, 81, 637-654.
  • Carlsson, C., Fuller, R., 2001, On possibilistic mean value and variance of fuzzy numbers, Fuzzy Sets and Systems, 122, 315-326.
  • Carlsson, C., Fuller, R., 2003. A fuzzy approach to real option valuation. Fuzzy Sets and Systems, 139, 297–312.
  • Clewlow, L., Strickland, C., 1998, Implementing derivatives models. Chichester: John Wiley & sons, Inc.
  • Cox, J. C., Ross, S. A. Rubinstein, M., 1979, Option pricing: a simplified approach. Journal of Financial Economics, 7, 229–263.
  • Dai, H., Sun, T., Guo, W., 2016, Brownfield Redevelopment Evaluation Based on Fuzzy Real Options, Sustainability, 8, 170.
  • Montsho, O., 2012, Real Options Valuation for South African Nuclear Waste Management Using a Fuzzy Mathematical Approach, Msc. Thesis, Rhodes University Department of Mathematics.
  • Tolga, A. C., Kahraman, C., Demircan, M. L., 2009, A Comparative Fuzzy Real Options Valuation Model using Trinomial Lattice and Black– Scholes Approaches: A Call Center Application, Journal of Multiple Valued Logic & Soft Computing, 16, 135-154.
  • Trigeorgis, L., 1993, Real options and interactions with financial flexibility. Financial Management, 22, 202–224.
  • Ucal, I., Kahraman, C., 2009, Fuzzy real options valuation for oil investments, Technological and Economic Development of Economy, 15, 4, 646-669.
  • You, C. J., Lee, C. K. M., Chen, S. L., Jiao, R. J., 2012, A real option theoretic fuzzy evaluation model for enterprise resource planning investment, Journal of Engineering and Technology Management, 29(1), 47-61.
  • Zadeh, L. A., 1965, Fuzzy sets. Information and Control, 8, 338–353.

FUZZY REAL OPTION VALUATION MODEL USING TRINOMIAL LATTICE APPROACH AND ITS PROPERTY CONSTRUCTION INVESTMENT APPLICATION

Year 2017, Volume: 6 Issue: 1, 19 - 23, 30.12.2017
https://doi.org/10.17261/Pressacademia.2017.739

Abstract

Objective-
Decision makers usually use conventional methods in appraising investment
projects. However, nowadays, dynamic valuation models about the future of
investments also needs to be included in the decision making process. This
study aims to show that a property construction investment project, which seems
to be unprofitable with conventional methods currently, can be implemented
profitably in the future by using a fuzzy real
option method with dynamic characteristics. Using fuzzy numbers in addition to
the classical fuzzy option theory will expand the model’s scope and enable it
to contain more information, thereby making it more appropriate for investment
environments with high uncertainty.  In addition, both the
standard deviation calculated from expected value of the fuzzy numbers and the
historical volatility will be used for the fuzzy real option valuation. Thus,
it is aimed to compare the two methods. Finally, it is aimed to transfer expert
opinions to the model as well.    

Methodology-
The project valuation of a property construction investment planned to be
made in Turkey has been performed by using Trinomial Fuzzy Real Option method.
First, the volatility variable of this model was determined on the basis of
Carlsson and Fuller’s proposal of expected values and standard deviations for
fuzzy numbers. Next, the historical volatility of house price index used for
the volatility variable of the model. Finally, these two methods were compared.
The model also includes expert opinions. These expert opinions have been
transferred to the model with the aggregation of fuzzy numbers.

Findings-
According to the valuation conducted with Trinomial Fuzzy Real Options, the
property construction investment project, which seems to be unprofitable
currently, can be implemented profitably in the future. Due to the
transactional nature of fuzzy numbers, volatility value, which is calculated on
the basis of standard deviation of cash flows, will increase per annum. On the
other hand, the historical volatility is used as a constant for all investment
years. In parallel with this approach, the optimum investment year of the model
using the standard deviation of cash flows as volatility has been different the
model with historical volatility.







Conclusion- The idea of using options in investment projects adds both managerial
flexibility and uncertainty concepts to the valuation process.
In addition to the term volatility, which is used for the concept of
uncertainty in the model, the naturally existent uncertainty of fuzzy numbers
is also used in the model.
Furthermore, it is shown that the investment project, which seems to be
unprofitable currently, can be carried out profitably in the future with the
managerial flexibility of a delay option. While the volatility, which is
calculated on the basis of 
the standard deviation of cash flows, postpones the optimum investment
timing with its increasing value, the historical volatility model gives earlier
optimum investment timing. 

References

  • Aranda, F., C., Arango, F., O., Lianos, A., I., C., 2016, Project Valuation of a Distribution Centre of an Auxiliary Rail Freight Terminal: Using Real Options with Fuzzy Logic and Binomial Trees, Journal of Applied Economic Sciences,11, 894-904.
  • Biancardi, M., Villani, G., 2017, A fuzzy approach for R&D compound option valuation, Fuzzy Sets and Systems, 310, 108-121.
  • Black, F., Scholes, M., 1973, The pricing of options and corporate liabilities, Journal of Political Economy, 81, 637-654.
  • Carlsson, C., Fuller, R., 2001, On possibilistic mean value and variance of fuzzy numbers, Fuzzy Sets and Systems, 122, 315-326.
  • Carlsson, C., Fuller, R., 2003. A fuzzy approach to real option valuation. Fuzzy Sets and Systems, 139, 297–312.
  • Clewlow, L., Strickland, C., 1998, Implementing derivatives models. Chichester: John Wiley & sons, Inc.
  • Cox, J. C., Ross, S. A. Rubinstein, M., 1979, Option pricing: a simplified approach. Journal of Financial Economics, 7, 229–263.
  • Dai, H., Sun, T., Guo, W., 2016, Brownfield Redevelopment Evaluation Based on Fuzzy Real Options, Sustainability, 8, 170.
  • Montsho, O., 2012, Real Options Valuation for South African Nuclear Waste Management Using a Fuzzy Mathematical Approach, Msc. Thesis, Rhodes University Department of Mathematics.
  • Tolga, A. C., Kahraman, C., Demircan, M. L., 2009, A Comparative Fuzzy Real Options Valuation Model using Trinomial Lattice and Black– Scholes Approaches: A Call Center Application, Journal of Multiple Valued Logic & Soft Computing, 16, 135-154.
  • Trigeorgis, L., 1993, Real options and interactions with financial flexibility. Financial Management, 22, 202–224.
  • Ucal, I., Kahraman, C., 2009, Fuzzy real options valuation for oil investments, Technological and Economic Development of Economy, 15, 4, 646-669.
  • You, C. J., Lee, C. K. M., Chen, S. L., Jiao, R. J., 2012, A real option theoretic fuzzy evaluation model for enterprise resource planning investment, Journal of Engineering and Technology Management, 29(1), 47-61.
  • Zadeh, L. A., 1965, Fuzzy sets. Information and Control, 8, 338–353.
There are 14 citations in total.

Details

Journal Section Articles
Authors

Huseyin Yigit Ersen This is me

Oktay Tas

Publication Date December 30, 2017
Published in Issue Year 2017 Volume: 6 Issue: 1

Cite

APA Ersen, H. Y., & Tas, O. (2017). FUZZY REAL OPTION VALUATION MODEL USING TRINOMIAL LATTICE APPROACH AND ITS PROPERTY CONSTRUCTION INVESTMENT APPLICATION. PressAcademia Procedia, 6(1), 19-23. https://doi.org/10.17261/Pressacademia.2017.739
AMA Ersen HY, Tas O. FUZZY REAL OPTION VALUATION MODEL USING TRINOMIAL LATTICE APPROACH AND ITS PROPERTY CONSTRUCTION INVESTMENT APPLICATION. PAP. December 2017;6(1):19-23. doi:10.17261/Pressacademia.2017.739
Chicago Ersen, Huseyin Yigit, and Oktay Tas. “FUZZY REAL OPTION VALUATION MODEL USING TRINOMIAL LATTICE APPROACH AND ITS PROPERTY CONSTRUCTION INVESTMENT APPLICATION”. PressAcademia Procedia 6, no. 1 (December 2017): 19-23. https://doi.org/10.17261/Pressacademia.2017.739.
EndNote Ersen HY, Tas O (December 1, 2017) FUZZY REAL OPTION VALUATION MODEL USING TRINOMIAL LATTICE APPROACH AND ITS PROPERTY CONSTRUCTION INVESTMENT APPLICATION. PressAcademia Procedia 6 1 19–23.
IEEE H. Y. Ersen and O. Tas, “FUZZY REAL OPTION VALUATION MODEL USING TRINOMIAL LATTICE APPROACH AND ITS PROPERTY CONSTRUCTION INVESTMENT APPLICATION”, PAP, vol. 6, no. 1, pp. 19–23, 2017, doi: 10.17261/Pressacademia.2017.739.
ISNAD Ersen, Huseyin Yigit - Tas, Oktay. “FUZZY REAL OPTION VALUATION MODEL USING TRINOMIAL LATTICE APPROACH AND ITS PROPERTY CONSTRUCTION INVESTMENT APPLICATION”. PressAcademia Procedia 6/1 (December 2017), 19-23. https://doi.org/10.17261/Pressacademia.2017.739.
JAMA Ersen HY, Tas O. FUZZY REAL OPTION VALUATION MODEL USING TRINOMIAL LATTICE APPROACH AND ITS PROPERTY CONSTRUCTION INVESTMENT APPLICATION. PAP. 2017;6:19–23.
MLA Ersen, Huseyin Yigit and Oktay Tas. “FUZZY REAL OPTION VALUATION MODEL USING TRINOMIAL LATTICE APPROACH AND ITS PROPERTY CONSTRUCTION INVESTMENT APPLICATION”. PressAcademia Procedia, vol. 6, no. 1, 2017, pp. 19-23, doi:10.17261/Pressacademia.2017.739.
Vancouver Ersen HY, Tas O. FUZZY REAL OPTION VALUATION MODEL USING TRINOMIAL LATTICE APPROACH AND ITS PROPERTY CONSTRUCTION INVESTMENT APPLICATION. PAP. 2017;6(1):19-23.

PressAcademia Procedia (PAP) publishes proceedings of conferences, seminars and symposiums. PressAcademia Procedia aims to provide a source for academic researchers, practitioners and policy makers in the area of social and behavioral sciences, and engineering.

PressAcademia Procedia invites academic conferences for publishing their proceedings with a review of editorial board. Since PressAcademia Procedia is an double blind peer-reviewed open-access book, the manuscripts presented in the conferences can easily be reached by numerous researchers. Hence, PressAcademia Procedia increases the value of your conference for your participants. 

PressAcademia Procedia provides an ISBN for each Conference Proceeding Book and a DOI number for each manuscript published in this book.

PressAcademia Procedia is currently indexed by DRJI, J-Gate, International Scientific Indexing, ISRA, Root Indexing, SOBIAD, Scope, EuroPub, Journal Factor Indexing and InfoBase Indexing. 

Please contact to procedia@pressacademia.org for your conference proceedings.