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    Title: Computing a Multivariate Normal Integral for Valuing Compound Real Options
    Other Titles: 計算多重常態積分以求複實質選擇權之值
    Authors: 林蒼祥;Lin, William T.
    Contributors: 淡江大學財務金融學系
    Keywords: critical value;dividend-like yield;Gauss quadrature method;lattice method;Monte Carlo method;multivariate normal integral;real call option;secant method;臨界值;類似股殖利率;高斯多重積分數值法;格式多重積分數值法;蒙地卡羅數值法;多重常態積分;實質買權
    Date: 2002-03
    Issue Date: 2009-11-30 17:52:59 (UTC+8)
    Publisher: Springer
    Abstract: We extend the Geske (1979) model to a multivariate normal integral for the valuation of a compound real option. We compared the computing speeds and errors of three numerical integration methods, namely, Drezner's improved Gauss quadrature method, Monte Carlo method and Lattice method, together with appropriate critical value finding methods. It is found that secant method for finding critical values combined with Lattice method and run by Fortran took merely one second, Monte Carlo method 120 seconds. It is also found that the real option decreases with interest rate, not necessarily positively correlated with volatility σ, a result different from that anticipated under financial option theory. This is mainly because the underlying of real option is a non-traded asset, which brings dividend-like yield into the formula of compound real options. Dividend-like yield rises with the multiplication of correlation coefficient ρ and σ. High ρ indicates the poor diversification advantage of the new investment project in relation to the existing market portfolio, and the value of real call option decreases with σ. Conversely, when ρ is low, the proposed project provides better diversification advantage and the real call option rises with σ. Irrespective of the value of ρ, when interest rate increases, the value of real call option drops, especially when ρ is high, the value of the project is dominated by interest rate.
    Relation: Review of Quantitative Finance and Accounting 18(2), pp.185-209
    DOI: 10.1023/A:1014569119068
    Appears in Collections:[財務金融學系暨研究所] 期刊論文

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