A Comparative Fuzzy Real Options Valuation Model using Trinomial Lattice and Black–Scholes Approaches: A Call Center Application
A. Çagri Tolga, Cengiz Kahraman and Murat Levent Demircan
Valuation of the investment projects is very serious in every dimension. Conventional discounted cash-flow techniques are usually insufficient since these techniques fail to account for the flexibility in business decisions and violations occur as a result of the existing uncertainty in projects. Real option valuation methods overcome this problem with its efficient and flexible nature. Financial option valuation methods are applied into real options area with little changes in variable definitions. When there is a lack of data or involuntary companies about giving their financial data, fuzzy numbers can be used to capture this vagueness. In this study, both fuzzy Black–Scholes and fuzzy trinomial lattice models are examined. These two fuzzy models are compared with each other for the first time in this paper. Differently from the previous works, the parameter dividend yield is added into the fuzzy trinomial lattice model. They both are applied to a call center investment project. A comparison between these methods is made, and then a sensitivity analysis is discussed.
Keywords: Real options, Black–Scholes method, trinomial lattice method, fuzzy.