Abstract

CAYON FALLON, Edgardo  and  SARMIENTO SABOGAL, Julio. ROA: A delta-gamma approach for real investment project evaluation. Cuad. Adm. [online]. 2005, vol.18, n.29, pp.121-130. ISSN 0120-3592.

Real Option Analysis (ROA) has become a very interesting method to evaluate real investment projects as it supports decision-making on project selection and timing. Black and Scholes' method was initially applied to financial options, but it has turned out an interesting method to evaluate real investment projects and it is a good tool for investors to make their decisions. This paper tries to complement the results obtained on the basis of Luherman's quadrant method for ROA. By applying the first and second partial derivatives from Black and Scholes -delta and gamma-, new information is produced that supplements the investor's information stock available to make a decision on real projects. It is shown that ROA derivative information can be used to evaluate specific results obtained from a given methodology; such data complement information already available for decision-making by real investors. Finally, further research is called to test validity and implications for sector analysis and real project classification.

Keywords : Finance; risk; investment decisions; project evaluation; real option analysis.

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