Abstract
To have a real option means to have the possibility for a certain period to either choose for or against making an invetsment decision, without binding oneself up front. The real option rule is that one should invest today only if the net present value is high enough to compensate for giving up the value of the option to wait. Because the option to invest loses its value when the investment is irreversibly made, this loss is an opportunity cost of investing. The main question that a management group must answer for a deferrable investment opportunity is: How long do we postpone the investment, if we can postpone it, up to T time periods? In this paper we shall introduce a (heuristic) real option rule in a fuzzy setting, where the present values of expected cash flows and expected costs are estimated by trapezoidal fuzzy numbers. Following Carlsson and Fullér [10] shall determine the optimal exercise time by the help of possibilistic mean value and variance of fuzzy numbers.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Alleman J. and Noam E. eds., The New Investment Theory of Real Options and Its Implication for Telecommunications Economics, Kluwer Academic Publishers, Boston 1999.
Benaroch M. and Kauffman R.J., Justifying electronic banking network expansion using real options analysis, MIS Quarterly, 24(2000) 197–225.
Balasubramanian P., Kulatikala N. and Storck J., Managing information technology investments using a real-options approach, Journal of Strategic Information Systems, 9(2000) 39–62.
Black F. and Scholes M., The pricing of options and corporate liabilities, Journal of Political Economy, 81(1973) 637–659.
Carlsson C. and Fullér R., Real option evaluation in fuzzy environment, in: Proceedings of the International Symposium of Hungarian Researchers on Computational Intelligence, Budapest, November 2, 2000 69–77.
Carlsson C. and Fullér R., On possibilistic mean value and variance of fuzzy numbers, Fuzzy Sets and Systems, 122(2001) 315–326.
Carlsson C, Fullér R. and Majlender P., Project selection with fuzzy real options, in: Proceedings of the Second International Symposium of Hungarian Researchers on Computational Intelligence, Budapest, November 12, 2001 81–88.
Carlsson C. and Fullér R., On optimal investment timing with fuzzy real options, in: Proceedings of the EUROFUSE 2001 Workshop on Preference Modelling and Applications, April 25–28, 2001, Granada, Spain, 2001 235–239.
Carlsson C. and Fullér R., Project scheduling with fuzzy real options, in: Robert Trappl ed., Cybernetics and Systems’2002, Proceedings of the Sixteenth European Meeting on Cybernetics and Systems Research, Vienna, April 2–4, 2002, Austrian Society for Cybernetic Studies, 2002 511–513.
Carlsson C. and Fullér R., A fuzzy approach to real option valuation, Fuzzy Sets and Systems 139(2003) 297–312.
Leslie K.J. and Michaels M.P., The real power of real options, The McKinsey Quarterly, 3(1997) 5–22.
Luehrman T.A., Investment opportunities as real options: getting started on the numbers, Harvard Business Review, July-August 1998, 51–67.
Merton R., Theory of rational option pricing, Bell Journal of Economics and Management Science, 4(1973) 141–183.
Author information
Authors and Affiliations
Rights and permissions
Copyright information
© 2004 Springer Science+Business Media New York
About this chapter
Cite this chapter
Carlsson, C., Fedrizzi, M., Fullér, R. (2004). Fuzzy Real Options for Strategic Planning. In: Fuzzy Logic in Management. International Series in Operations Research & Management Science, vol 66. Springer, Boston, MA. https://doi.org/10.1007/978-1-4419-8977-2_4
Download citation
DOI: https://doi.org/10.1007/978-1-4419-8977-2_4
Publisher Name: Springer, Boston, MA
Print ISBN: 978-1-4613-4744-6
Online ISBN: 978-1-4419-8977-2
eBook Packages: Springer Book Archive