TY  - JOUR
TT  - FUZZY REAL OPTION VALUATION MODEL USING TRINOMIAL LATTICE APPROACH AND ITS PROPERTY CONSTRUCTION INVESTMENT APPLICATION
AU  - Ersen, Huseyin Yigit
AU  - Tas, Oktay
PY  - 2017
DA  - December
DO  - 10.17261/Pressacademia.2017.739
JF  - PressAcademia Procedia
JO  - PAP
PB  - Suat TEKER
WT  - DergiPark
SN  - 2459-0762
SP  - 19
EP  - 23
VL  - 6
IS  - 1
KW  - Real options
KW  - property investment
KW  - fuzzy sets
KW  - net present value
KW  - investment projects
KW  - trinomial fuzzy real option valuation
N2  - Objective-Decision makers usually use conventional methods in appraising investmentprojects. However, nowadays, dynamic valuation models about the future ofinvestments also needs to be included in the decision making process. Thisstudy aims to show that a property construction investment project, which seemsto be unprofitable with conventional methods currently, can be implementedprofitably in the future by using a fuzzy realoption method with dynamic characteristics. Using fuzzy numbers in addition tothe classical fuzzy option theory will expand the model’s scope and enable itto contain more information, thereby making it more appropriate for investmentenvironments with high uncertainty. In addition, both thestandard deviation calculated from expected value of the fuzzy numbers and thehistorical volatility will be used for the fuzzy real option valuation. Thus,it is aimed to compare the two methods. Finally, it is aimed to transfer expertopinions to the model as well. Methodology-The project valuation of a property construction investment planned to bemade in Turkey has been performed by using Trinomial Fuzzy Real Option method.First, the volatility variable of this model was determined on the basis ofCarlsson and Fuller’s proposal of expected values and standard deviations forfuzzy numbers. Next, the historical volatility of house price index used forthe volatility variable of the model. Finally, these two methods were compared.The model also includes expert opinions. These expert opinions have beentransferred to the model with the aggregation of fuzzy numbers. Findings-According to the valuation conducted with Trinomial Fuzzy Real Options, theproperty construction investment project, which seems to be unprofitablecurrently, can be implemented profitably in the future. Due to thetransactional nature of fuzzy numbers, volatility value, which is calculated onthe basis of standard deviation of cash flows, will increase per annum. On theother hand, the historical volatility is used as a constant for all investmentyears. In parallel with this approach, the optimum investment year of the modelusing the standard deviation of cash flows as volatility has been different themodel with historical volatility. Conclusion- The idea of using options in investment projects adds both managerialflexibility and uncertainty concepts to the valuation process. In addition to the term volatility, which is used for the concept ofuncertainty in the model, the naturally existent uncertainty of fuzzy numbersis also used in the model. Furthermore, it is shown that the investment project, which seems to beunprofitable currently, can be carried out profitably in the future with themanagerial flexibility of a delay option. While the volatility, which iscalculated on the basis ofthe standard deviation of cash flows, postpones the optimum investmenttiming with its increasing value, the historical volatility model gives earlieroptimum investment timing.
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UR  - https://doi.org/10.17261/Pressacademia.2017.739
L1  - https://dergipark.org.tr/en/download/article-file/392952
ER  -