Real Options Valuation: The Importance of Interest Rate Modelling in Theory and Practice: v. 559 (Lecture Notes in Economics and Mathematical Systems) - Softcover

Schulmerich, Marcus

Softcover

ISBN 10: 3540261915 ISBN 13: 9783540261919

Publisher: Springer, 2008

Synopsis

This book analyzes real options valuation for non-constant versus constant interest rates using simulation and historical backtesting. Several real options are investigated and combined with various pricing tools and stochastic term structure models. Interest rates for real options valuation are simulated by using stochastic term structure models (Vasicek, Cox-Ingersoll-Ross, Ho-Lee, and Hull-White one-factor and two-factor models) and by using implied forward rates. The book shows that the assumption of a constant interest rate in real options valuation is not justifiable. All necessary theory is provided in the book. The analyses were conducted using a proprietary computer simulation program. All results are explained in detail and rules are derived for application in Corporate Finance practice. For the first time, a systematic analysis based on simulations and historical backtesting compares real options valuation using constant interest rates and the implied forward rates with methods that simulate interest rates stochastically.

About this title

From the Back Cover

This book analyzes real options valuation for non-constant versus constant interest rates using simulations and historical backtesting. It provides a systematic analysis and compares real options valuation using constant interest rates and the implied forward rates with methods that simulate interest rates stochastically. Real options are investigated and combined with various pricing tools and stochastic term structure models. Interest rates for real options valuation are simulated by using stochastic term structure models (Vasicek, Cox-Ingersoll-Ross, Ho-Lee, and Hull-White one-factor and two-factor models) and by using implied forward rates. All necessary theory is provided in the book. The analyses were conducted using a proprietary computer simulation program. All results are explained in detail and rules are derived for application in Corporate Finance practice. The major change in this second edition is the expanded number of tested scenarios. The second edition contains an expanded number of tested scenarios covering the time period of the financial crisis 2008, one of the worst stock market crashes in history. The findings confirm the results provided in the first edition.

About the Author

Marcus Schulmerich received his doctoral degree with Prof. Ulrich Hommel, Ph.D., Endowed Chair of Corporate Finance and Capital Markets at the ebs Business School in Wiesbaden, Germany. He is a Mathematician by training, focusing on Financial Engineering, and earned his MBA from the M.I.T. Sloan School of Management in Cambridge, MA / USA.

Dr. Schulmerich works as a Product Specialist for quantitative equity and hedge fund strategies with State Street Global Advisors (SSgA) in Munich, Germany, covering the complete EMEA region (Europe, Middle East and Africa). He is a frequent guest lecturer at the ebs and other universities for courses in "Financial Engineering", "Risk Management" and "Derivatives" and publishes regularly on Finance and Asset Management in newspapers, magazines and books.

Edition details

• Publisher: Springer
• Publication date: 2008
• Language: English
• ISBN 10: 3540261915
• ISBN 13: 9783540261919
• Binding: Paperback
• Number of pages: 376