Real Options Valuation under Different Dynamics of the Underlying Asset

Abstract

The present study is designed to demonstrate the application of the option valuation technique in the field of real assets valuation and in particular – valuation of entire enterprises. The main postulates and assumptions underlying the valuation of options are presented, and in order to derive the most plausible valuation methodology, a key emphasis is placed on the dynamics of the underlying asset. The main probabilistic processes modeling the behavior of asset prices cited in the scientific literature and used in practice are analyzed. In the practical part, the option technique is applied for valuation of an enterprise operating in the field of oil production, distribution and sale, as two parallel comparative estimates of the enterprise value are made depending on the assumptions for the dynamics of uncertainty of the underlying asset.