Investment under uncertainty and volatility estimation risk

Dotsis, George; Makropoulou, Vasiliki; Markellos, Raphael N.

doi:10.1080/13504851.2011.570697

Cited by 3 publications

(2 citation statements)

References 7 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Other articles discussing real option volatility include Davis (1998), Cobb and Charnes (2004) and Godinho and Costa (2007). Dotsis et al (2012) provide a framework for examining the impact of uncertain volatilities on option prices.…”

Section: Real Optionsmentioning

confidence: 99%

Dynamic transfer pricing under conditions of uncertainty – the use of real options

Smolarski

Wilner

Vega

2019

JAOC

View full text Add to dashboard Cite

Purpose This paper aims to examine the applicability of real options methodology with respect to developing internal transfer pricing mechanisms. A pervasive theme in existing models is their inability to handle the dynamic and volatile nature of today’s business environment, as well as their lack of objective managerial flexibility. The authors address these and other issues and develop a transfer pricing mechanism based on Black–Scholes and the binomial options pricing methodology, which is better suited in today’s dynamic business environment. Design/methodology/approach The authors use a conceptual approach in developing theoretical justifications and show, practically, how a transfer price can be developed using two different real options pricing models. Findings The authors find that real options transfer price mechanism (real options framework [ROF]) can effectively deal with many of the issues that permeate a modern organization with complex multi-dimensional operations. The authors argue that uncertainty and behavioral issues commonly associated with setting transfer prices are better handled using a transfer pricing mechanism that preserves flexibility at the business unit level, the managerial level and the firm level. The approach allows for different managerial styles in both centralized and decentralized sub-units within the same organization. The authors argue that an open multi-dimensional framework using real options is suitable under conditions of uncertainty and managerial opportunism. Practical implications ROF-based transfer pricing may be significant in that firms can use it as a tool to manage an organization by setting the prices centrally and at the same time allowing managers to select the transfer price that best suits their specific situation and operating conditions. This may result in a more efficient and more profitable organization. Originality/value The contribution of the paper is the melding of the ROF from the finance literature with the accounting problem of setting a transfer price for items lacking a competitive market price. The authors also contribute to existing research by explicitly developing a framework that values managerial flexibility, takes into account uncertainty and considers the behavioral aspects of the transfer pricing process. The authors establish the conditions under which a generic real options model is a feasible alternative in determining a transfer price.

show abstract

Section: Real Optionsmentioning

confidence: 99%

Dynamic transfer pricing under conditions of uncertainty – the use of real options

Smolarski

Wilner

Vega

2019

JAOC

View full text Add to dashboard Cite

show abstract

“…The real options analysis is so effective in the current business climate because of its explicit recognition process according to which future decisions designed to maximize value will depend on new information that will not be available or possible to obtain until after the initial investment has been made (Del Giudice et al, 2014;Dotsis et al, 2012;Fanklin & Diallo, 2012;Hult et al, 2010, Lankton & Luft, 2008.…”

Section: Introductionmentioning

confidence: 99%

Defining the Black and Scholes approach: a first systematic literature review

2015

View full text Add to dashboard Cite

Purpose: The aim of the paper is to investigate the Black and Scholes model by providing an updated framework of the international literature on the topic, within the field of real option. The purpose of the research is to identify the relevant literature between 1999 and 2015, together with the most important perspectives on the Black and Scholes model as analysed by scholars, in order to provide a useful support to the academic community in their studies. The investigation was carried out only for its economic and corporate insights, with the objective of establishing the strong and weak points highlighted in the defined framework. Methodology: The method used for the research was based on qualitative approach. International literature on the topic was examined through a research protocol. The research was developed by the identification of four keywords (Real Options Valuation, Real Options Assessment, Black and Scholes, Real Options Pricing) and searching them in two databases, with the purpose of obtaining a wide range of scientific contribution for the analysis. Originality/value: The paper presents an accurate review of the scientific contribution on the topic of the Black and Scholes model; it defines the fields of application, opportunities offered and issues relating to its application, in order to clarify the strong and weak points of the model. Practical implications: The Black and Scholes model of the 1970s is acknowledged to be the most widely used model for evaluating options. Our study shows that this method has been adopted by decision-makers not only for evaluating options but also in other fields.

show abstract

Research Status and Development Trend of Risk Assessment of Oil and Gas Projects—A Comparative Bibliometric Analysis Based on Wos and Cnki Databases

段

2023

View full text Add to dashboard Cite

Investment under uncertainty and volatility estimation risk

Cited by 3 publications

References 7 publications

Dynamic transfer pricing under conditions of uncertainty – the use of real options

Dynamic transfer pricing under conditions of uncertainty – the use of real options

Defining the Black and Scholes approach: a first systematic literature review

Research Status and Development Trend of Risk Assessment of Oil and Gas Projects—A Comparative Bibliometric Analysis Based on Wos and Cnki Databases

Contact Info

Product

Resources

About