Prof. Carol Alexander will lead a University Finance Seminar on A General Decision-Tree Approach to Real Option Valuation on Tuesday 13 June in the KBS Symposium Room at 3.00pm.
Carol Alexander is Professor of Finance at Sussex Business School has held the following positions in financial institutions: Fixed Income Trader at UBS/Phillips and Drew (UK); Academic Director of Algorithmics (Canada); Director of Nikko Global Holdings and Head of Market Risk Modeling (UK); Risk Research Advisor, SAS (USA). She also acts as an expert witness and consultant in financial modelling.
She publishes widely on a broad range of topics, including: volatility theory; option pricing and hedging; trading volatility; hedging with futures; alternative investments; random orthogonal matrix simulation; game theory and real options. She has written and edited numerous books in mathematics and finance and published extensively in top-ranked international journals. Her four-volume textbook on Market Risk Analysis (Wileys, 2008) is the definitive guide to the subject.
The abstract for her talk follows:
The common paradigm for risk-neutral real-option pricing is a special case encompassed within our general model for valuing investment opportunities. Risk-neutral real option prices deviate from the risk-averse real option values that apply in an incomplete market, giving different rankings of investment opportunities and different optimal exercise strategies. Unlike risk-neutral prices, more general real option values often decrease with the volatility of the asset price. They also depend on the structure of fixed and variable investment costs, the expected return of the underlying asset, the frequency of decision opportunities, the price of the asset relative to initial wealth, the investors risk tolerance and its sensitivity to wealth. We explain how these factors affect the ranking of real option values under a standard geometric Brownian motion for the asset price. Numerical examples also consider boom-bust or mean-reverting price scenarios and investments with positive or negative cash flows.
For more information, please contact Prof. Radu Tunaru (r.tunaru@kent.ac.uk).