Research Reports from the Department of Operations
Document Type
Report
Publication Date
6-1-1988
Abstract
Recently techniques of continuous time arbitrage and stochastic control theory have been used to value risky ventures characterized by significant operating flexibility. While the advantages of these methods over the used discounted cash flow approaches have been well documented, implementation problems have emerged, primarily due to the immence mathematical and computational complexity inherent in these approaches and due to the fact that the methodology is not easily understood by management. This article uses a simple binomial framework which not only provides an easily understandable introduction to these new methods, but also provides useful valuations in their own right.
Keywords
Operations research, Arbitrage, Stochastic processes, Financial risk management, Cash flow--Forecasting, Business--Decision making
Publication Title
Technical Memorandums from the Department of Operations, School of Management, Case Western Reserve University
Issue
Technical memorandum no. 668
Rights
This work is in the public domain and may be freely downloaded for personal or academic use
Recommended Citation
Ritchken, Peter H. and Kamrad, Bardia, "A Binomial Contingent Claims Model for Valuing Risky Ventures" (1988). Research Reports from the Department of Operations. 60.
https://commons.case.edu/wsom-ops-reports/60
