Title of article :
Simulation–optimization mechanism for expansion strategy using real option theory
Author/Authors :
Yuan، نويسنده , , Fong-Ching and Chiu، نويسنده ,
Issue Information :
روزنامه با شماره پیاپی سال 2009
Pages :
9
From page :
829
To page :
837
Abstract :
A right expansion strategy can bring a company more market shares and profits, and hence increase shareholders’ equities. However, limited financial resources and various uncertainties require business practitioners to achieve their goals while controlling the risks incurred at an acceptable level. Therefore, justification of expansion investments is an important and complex topic in industry. The traditional investment analysis tools such as net present value (NPV) often tend to undervalue investment decisions. We formulate the expansion investments using real options, and develop a financial model to assess the option value. Monte Carlo simulation is considered a good way to estimate the value of the option. This valuation gives decision makers a way to choose the appropriate expansion strategy based on an integrated view of the market dynamics, but optimization is still a difficult problem to resolve. This paper presents a model of optimization under uncertainty combining system simulation with GA-based optimization to resolve the expansion problem. An industry case is used to demonstrate the application of real options to value expansion investment by using simulation–optimization. This approach also provides some new insights for the real options theory.
Keywords :
Net present value (NPV) , Monte Carlo simulation , Simulation–optimization , real options , Expansion strategy
Journal title :
Expert Systems with Applications
Serial Year :
2009
Journal title :
Expert Systems with Applications
Record number :
2345017
Link To Document :
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