Real options: Capital investment appraisal; estimating the market price of risk and application to the valuation of a new business

Muhammad Mustafa RASHID

Abstract


Abstract. The risk-neutral valuation approach to evaluating an investment avoids the need to estimate risk-adjusted discount rates, but it does require the market price of risk parameters for all stochastic variables. When historical data is available on a particular variable, its market price of risk can be estimated using the capital asset pricing model.

Keywords. Real options; Capital investment appraisal; Market price of risk; New business valuation; Internet companies; Amazon.

JEL. G30; G31; G32; N00; N80; M10.

Keywords


Real options; Capital investment appraisal; Market price of risk; New business valuation; Internet companies; Amazon.

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References


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DOI: http://dx.doi.org/10.1453/jeb.v9i2.2296

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