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Viewing report
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Credit Risk Analysis and Real Option Valuation. Edition No. 1
VDM Publishing House, Dec 2008, Pages: 296
Real Options have emerged as a way to capture the
value of managerial flexibility embedded in
investments allowing managers to generate new
opportunities. This methodology is applied to a real
estate project where the optimal strategy
(simultaneous vs. sequential), construction time, and
exclusive rights to the land are determined.
Real Options are also applied to credit risk, where
default occurs the first time the exchange rate
crosses the default barrier. A two-phase calibrated
structural model is proposed for the estimation of
the sovereign spreads and default probabilities of
Brazil, Mexico, Russia and Turkey.
Alternatively, Fuzzy c-Means (FCM) clustering
provides several advantages over the heavily used
discriminant analysis. A weighted FCM algorithm is
proposed for the estimation of the credit risk of the
Brazilian electricity pool, the free-rider problem
introduced by the regulation, and the correct cost of
capital for new power generation.
Finally, Fuzzy Real Options have appeared as a method
to handle imprecision and non-statistical
uncertainty. The method is reviewed and applied to a
Giga-investment project in the energy sector
providing reasonable results.
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