The Sequential Compound Option Pricing with Random Interest Rate and Application to Project Valuation

DOI

10.2991/jcis.2006.98How to use a DOI?

Keywords

sequential compound option, project valuation, real option, random interest rate, option pricing

Abstract

This paper proposes the pricing formula of sequential compound options (SCOs) with random interest rate and the applications call Milestone Project Valuation (MPV). Most compound options in literatures are 2-fold with constant parameters through time. The multi-fold compound options are just sequential compound CALL options. The multi-fold sequential compound options proposed in this study are compound option on (compound) option with random interest rate and allow call/put alteration. Besides, the parameters can vary in different folds and make the model more flexible. The SCOs can enhance and broaden the usages of compound option in real option and financial derivative fields, including MPV. The projects that set some critical milestones, which should be achieved sequentially, are called milestone projects. This study propose the milestone project valuation by SCOs with random interest rate.

Copyright

© 2006, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - Meng-Yu Lee
AU  - Fang-Bo Yeh
AU  - An-Pin Chen
PY  - 2006/10
DA  - 2006/10
TI  - The Sequential Compound Option Pricing with Random Interest Rate and Application to Project Valuation
BT  - Proceedings of the 9th Joint International Conference on Information Sciences (JCIS-06)
PB  - Atlantis Press
SN  - 1951-6851
UR  - https://doi.org/10.2991/jcis.2006.98
DO  - 10.2991/jcis.2006.98
ID  - Lee2006/10
ER  -