© 2010

Real Options Valuation

The Importance of Interest Rate Modelling in Theory and Practice


Table of contents

  1. Front Matter
    Pages i-xviii
  2. Marcus Schulmerich
    Pages 1-20
  3. Marcus Schulmerich
    Pages 21-69
  4. Marcus Schulmerich
    Pages 133-195
  5. Marcus Schulmerich
    Pages 363-374
  6. Back Matter
    Pages 375-389

About this book


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.


Corporate Finance Finance Implied Forward Rates Monte Carlo Simulation Options Real Options Stochastic Interest Rate Models Stock market Valuation

Authors and affiliations

  1. 1.State Street Global Advisors (SSgA)Vice PresidentMünchenGermany

About the authors

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.

Bibliographic information

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