According to the traditional financial theory, the discounted cash flow model (or NPV) functions as the fundamental framework for the majority of analyses. In performing valuation analysis, the traditional view is that the net present value (NPV) of a project is the
The Real Option Approach (ROA) has been put forth as the solution to the problem of valuing manager flexibility and project risk within the framework of capital budgeting. In this thesis the ROA is applied on one of the riskiest of corporate ventures namely foreign direct investment.
Regarded as the most crucial element in option pricing, volatility is well-known to be diﬃcult to estimate accurately. In the real world, by the reason of incomplete information and imperfect market, the implied volatility of an asset can rarely coincide with its