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Pricing R&D Option with Combining Randomness and Fuzziness

  • Jinliang Zhang
  • Huibin Du
  • Wansheng Tang
Conference paper
Part of the Lecture Notes in Computer Science book series (LNCS, volume 4114)

Abstract

Random fuzzy theory is introduced to evaluate the option value of R&D project in this paper. Based on a new theoretical insight, we develop a random fuzzy jump amplitude model to price R&D option. In classic stochastic jump amplitude model, the value of R&D option depends on the expected number of jumps and the expected size of the jumps. However, in practice, it is so hard to get enough data that the distribution functions of them are difficult to be confirmed accurately. So random fuzzy theory can deal with these problems better. In this paper, the number of jumps and the size of jumps are taken as random fuzzy variables, and investment costs and future cash flows are depicted as fuzzy variables. New research tools for option pricing of R&D project are developed and the capability of dealing with practical problems is enhanced.

Keywords

Option Price Real Option Fuzzy Variable Jump Process Risk Free Rate 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2006

Authors and Affiliations

  • Jinliang Zhang
    • 1
  • Huibin Du
    • 1
  • Wansheng Tang
    • 1
  1. 1.Institute of Systems Engineering, Tianjin University, Tianjin 300072China

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