Research Reports from the Department of Operations
Document Type
Dissertation
Publication Date
8-1-1990
Abstract
The methodology for determining the value of a claim whose payoffs depend upon the stochastic prices of other assets is referred to as Contingent Claims Analysis (CCA). This methodology has now become an industry standard for valuation of financial assets such as options, warrants, bonds, convertibles, and a host of other financial derivative securities. In recent years, techniques of Contingent Claims Analysis (CCA) and stochastic control theory have also been used to value risky ventures characterized by significant operating flexibility. While the advantages of these methods over alternative valuation approaches have been well documented, implementation problems have emerged, primarily due to the immense mathematical and computational complexity inherent in these approaches. The objectives of this dissertation are twofold. The first part is concerned with development of new lattice based option pricing algorithms that account for multiple sources of uncertainty and provide computational advantages when compared to existing models. The second part of this thesis is concerned with development of arbitrage based models for valuing real claims. Specifically, by applying techniques of Contingent Claims Analysis (CCA), and stochastic control theory, these new lattice based option pricing algorithms will be generalized to provide a multinomial lattice framework for valuation of risky ventures.
Keywords
Operations research, Stochastic processes, Venture capital, Uncertainty--Mathematical models, Derivative securities
Publication Title
Dissertation/Technical Memorandums from the Department of Operations, School of Management, Case Western Reserve University
Issue
Technical memorandum no. 685 ; Submitted in partial fulfillment of the requirements for the Degree of Doctor of Philosophy.
Rights
This work is in the public domain and may be freely downloaded for personal or academic use
Recommended Citation
Kamrad, Bardia, "A Multinomial Lattice Option Pricing Methodology for Valuing Risky Ventures: Multiple Sources of Uncertainty" (1990). Research Reports from the Department of Operations. 327.
https://commons.case.edu/wsom-ops-reports/327
