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The Impact of Probability Distributions

Chapter
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Part of the SpringerBriefs in Finance book series (BRIEFSFINANCE)

Abstract

Volatility plays an essential role in real options valuation. In fact, real options models require volatility, which is also the most difficult input parameter to estimate. Higher volatility of the underlying leads to higher real options values. Therefore without volatility, real options provide no additional value for evaluation of investments and therefore it is better to rely on traditional capital budgeting techniques. Thus, when volatility is present, and the higher the better, real options is a very suitable tool for the assessment of investment decisions.

Keywords

Probability Distribution Uniform Distribution Shape Parameter Beta Distribution Real Option 
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.

References

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Copyright information

© Springer International Publishing Switzerland 2016

Authors and Affiliations

  1. 1.Applied EconomicsUniversity of AntwerpAntwerpBelgium

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