Valuation of real options using Monte Carlo simulation.

This theoretical paper presents a real options valuation method (SCV) based on Wiśniewski's concept, double Monte Carlo simulation (2MC). In this methodology, option valuation involves determining the difference between the average value of a project with an option and the average value of a project without option and is calculated using financial simulation models characterizing these investments. Calculated values of project with option and without depends on the input parameters (deterministic or/and stochastic), that are already used by managers. The real options valuation methodology is presented using a numerical example of a flexible investment. The analysis demonstrates the usefulness of the SCV method, especially in the early stages of investment implementation, for complex and multi-stage projects, and in the presence of multiple sources of risk, that can be easily modeled using market data. An additional conclusion from the paper is the difference between the values ​​of real options, determined using the SCV method, and the value of decision flexibility (2MC method), as well as their economic significance and their application in practice. [ABSTRACT FROM AUTHOR]