The application of real options as a tool for decision-making in the electricity market

Monica Andrea Arango Arango; Sergio Botero Botero

doi:10.23919/CISTI.2017.7975807

The application of real options as a tool for decision-making in the electricity market

Monica Andrea Arango Arango, Sergio Botero Botero

Financial Engineering Research Group (GINIF)

Research output: Contribution to conference › Paper

3 Scopus citations

Abstract

© 2017 AISTI. Traditional valuation methods such as Net present value (NPV) underestimate the value of projects when they face flexibility, that is to say, it does not know the actions of the managers in the face of changes in market conditions. The application of real options (OR) complements the results obtained by traditional methods, avoiding the possible underestimation of the value of investment projects. The Monte Carlo simulation used in the estimation of the OR opens the possibility of deriving the value of the option using empirical distributions on the returns of the underlying generating a series of trajectories, broadening the spectrum for the electricity market investor.

Original language	American English
DOIs	https://doi.org/10.23919/CISTI.2017.7975807
State	Published - 11 Jul 2017
Event	Iberian Conference on Information Systems and Technologies, CISTI - Duration: 11 Jul 2017 → …

Conference

Conference	Iberian Conference on Information Systems and Technologies, CISTI
Period	11/07/17 → …

Access to Document

10.23919/CISTI.2017.7975807

https://www.scopus.com/inward/record.uri?partnerID=HzOxMe3b&scp=85027060175&origin=inward

Cite this

@conference{b9e8e667dc9941e0ab1818b7df3af564,

title = "The application of real options as a tool for decision-making in the electricity market",

abstract = "{\textcopyright} 2017 AISTI. Traditional valuation methods such as Net present value (NPV) underestimate the value of projects when they face flexibility, that is to say, it does not know the actions of the managers in the face of changes in market conditions. The application of real options (OR) complements the results obtained by traditional methods, avoiding the possible underestimation of the value of investment projects. The Monte Carlo simulation used in the estimation of the OR opens the possibility of deriving the value of the option using empirical distributions on the returns of the underlying generating a series of trajectories, broadening the spectrum for the electricity market investor.",

author = "Arango, {Monica Andrea Arango} and Botero, {Sergio Botero}",

year = "2017",

month = jul,

day = "11",

doi = "10.23919/CISTI.2017.7975807",

language = "American English",

note = "Iberian Conference on Information Systems and Technologies, CISTI ; Conference date: 11-07-2017",

}

TY - CONF

T1 - The application of real options as a tool for decision-making in the electricity market

AU - Arango, Monica Andrea Arango

AU - Botero, Sergio Botero

PY - 2017/7/11

Y1 - 2017/7/11

N2 - © 2017 AISTI. Traditional valuation methods such as Net present value (NPV) underestimate the value of projects when they face flexibility, that is to say, it does not know the actions of the managers in the face of changes in market conditions. The application of real options (OR) complements the results obtained by traditional methods, avoiding the possible underestimation of the value of investment projects. The Monte Carlo simulation used in the estimation of the OR opens the possibility of deriving the value of the option using empirical distributions on the returns of the underlying generating a series of trajectories, broadening the spectrum for the electricity market investor.

AB - © 2017 AISTI. Traditional valuation methods such as Net present value (NPV) underestimate the value of projects when they face flexibility, that is to say, it does not know the actions of the managers in the face of changes in market conditions. The application of real options (OR) complements the results obtained by traditional methods, avoiding the possible underestimation of the value of investment projects. The Monte Carlo simulation used in the estimation of the OR opens the possibility of deriving the value of the option using empirical distributions on the returns of the underlying generating a series of trajectories, broadening the spectrum for the electricity market investor.

U2 - 10.23919/CISTI.2017.7975807

DO - 10.23919/CISTI.2017.7975807

M3 - Paper

T2 - Iberian Conference on Information Systems and Technologies, CISTI

Y2 - 11 July 2017

ER -

The application of real options as a tool for decision-making in the electricity market

Abstract

Conference

Access to Document

Fingerprint

Cite this