Abstract
The purpose of this paper is a quantitative study of the risk surrounding the main problem of investment decision making in project portfolio selection. The primary objective is to provide managers with a decision support tool allowing them to choose carefully their investment strategies and reduce risk of failure. The developed computer model consists of three major modules. The first module calculates projects cash-flow using a deterministic method. The second module calculates expected after tax net cash flows and estimates performance indicators for each realisation, thus yielding distribution of return for each project. The third module selects a set of projects (portfolio) using their covariance and semi-covariance matrix. In summary, we will define a selection model for portfolio management of investment projects that will not only take into account risk, but also the effect of the interdependence of projects. The model will be applied to a portfolio of projects in petroleum upstream.
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