EL MÉTODO DE DIFERENCIAS FINITAS EN EVALUACIÓN DE OPCIONES REALES.

In the past few years, real options, an extension of financial derivatives, have arisen as an alternative to traditional valuation methods, such as net present value (NPV). The key attribute of real options is that they take into consideration the uncertainty and fiexibility involved in investment valuation. This article provides an overview of the finite difference method, by presenting an application to the real options valuation. The empirical section of the article, which makes use of the implicit finite difference method (IFD), analyzes the options of waiting, abandoning, contracting, expanding and switching, by valuing all the options involved and their possible combinations. The results are compared with those of the NPV method and the binomial tree with a logarithmic transformation (BTLT). Both methods (IFD and BTLT) yield similar results, being both greater than those provided by the NPV. This difference comes to no surprise as it represents the value of the fiexibility associated to an investment opportunity. [ABSTRACT FROM AUTHOR]